Categories: AgricultureExchange Traded Funds (ETFs)

ETF Talk: Agriculture Provides Growth Potential

In the wake of this summer’s devastating drought, domestic crop prices are spiking. In addition, a rare period of summer-like temperatures in March caused trees to blossom earlier than usual, only for crops to be decimated by unexpected freezing in April. These atmospheric disruptions have resulted in a significant U.S. grain shortage. In light of these conditions, the agriculture sector could provide a potentially appealing investment opportunity. In particular, I’ve got my eye on the PowerShares DB Agriculture Fund (DBA).

After beginning the year at a tepid $29.12, the fund continued to fall before bottoming out at $25.80 on June 1. Since then, the fund has risen to close at $30.19 on Sept. 11. DBA now is up 4.12%, year-to-date.

Established in 2007, the PowerShares DB Agriculture Fund (DBA) seeks to track changes, whether positive or negative, in the level of the DBIQ Diversified Agriculture Index Excess Return™, plus the interest income from the fund’s holdings of US Treasury securities, less the fund’s expenses.

As of June 30, 2012, DBA’s top index allocation is as follows: corn, 12.5%; soybeans, 12.5%; sugar, 12.5%; live cattle, 12.5%; and cocoa, 11.11%. As you can see, the fund is invested widely (but exclusively) in the agriculture sector.

As indicated, this exchange-traded fund (ETF) invests exclusively in the agriculture sector, so it does expose investors to the sector’s associated risks. However, as U.S. agriculture continues to recover from the summer’s climate, the fund could provide a significant investment opportunity. Because the fund continues to trade at a premium to its net asset value (NAV) of $28.21, I cannot necessarily recommend investing in it at this time. Nonetheless, it remains a fund to watch.

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Doug Fabian

Doug Fabian is the Editor of Weekly ETF Report, a free weekly e-newsletter, and the newsletter Successful ETF Investing. He’s also the host of the syndicated radio show, “Doug Fabian’s Wealth Strategies.” Doug also edits the fast-paced trading service ETF Trader’s Edge, for investors who want to take their profits to the next level. Taking over the reins from his dad, Dick Fabian, back in 1992, Doug has continued to uphold the reputation of the newsletter as the #1 risk-adjusted market timer as ranked by Hulbert’s Investment Digest. Doug became a member of the “SmartMoney 30” in 1999 — a listing of the most influential individuals in the mutual fund industry. In the feature, SmartMoney magazine exclaims that Doug is the best-known “trend follower” among the $56 billion (and growing) group of financial advisors. In 2001, Doug wrote “Maverick Investing,” published by McGraw-Hill. He also regularly appears at seminars around the country, stands out on the pages of the largest newspapers (The Wall Street Journal, The Los Angeles Times, and The New York Times), and speaks on national television (CNBC, Fox News, and Bloomberg Forum). For more than 35 years, Successful ETF Investing (formerly the Telephone Switch Newsletter and Successful Investing) has produced double-digit percentage annual gains. Doug has become known for his expert knowledge and timely use of innovative tools, such as exchange-traded funds, bear funds, and enhanced-index funds to profit in any market climate. For more information about Doug’s services, go to http://www.fabian.com/