ETF Talk: Power Your Shares from the Ground Up

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

Investing in agricultural products can be as risky as growing them in unpredictable weather. Droughts such as the one farmers faced in 2012 are a key concern. For that reason, it is important to know how to weather any economic storm in agriculture, whether it occurs in the industrial, technological or manufacturing sector. An exchange-traded fund (ETF) with a broad mixture of agricultural holdings is the PowerShares Global Agriculture (PAGG).

This non-diversified fund seeks investment results that, before fees and expenses, correspond generally to the performance of an index that tracks companies engaged in agriculture and farming-related activities.

So far this year, PAGG has managed a modest gain of 1.2%, following last year’s strong gain of almost 13%. To go with those gains, the fund offers a dividend yield of 1.2%. Although commodity prices have tumbled recently, grain prices have soared. This data means the value of PAGG shares could climb as the year advances.

PAGG concentrates its assets in two sectors — basic materials, 58.82%, and consumer defensive, 38.87% — with the small remainder, 2.31%, invested in industrials. PAGG’s top ten individually held companies comprise 60.95% of the fund’s assets, with roughly equal distribution among the top five of those: Archer-Daniels-Midland Co. (ADM), 9.07%; Monsanto Co. (MON), 8.75%; Syngenta Ag Basel, (SYENF), 8.12%; Mosaic Company (MOS), 7.76%; and Potash Corp. of Saskatchewan Inc. (POT.TO), 7.45%.

Farming is a cyclical industry, especially due to seasonal patterns and the weather. Fortunately, for those who invest in a broad agricultural fund such as PAGG, you can reduce your risk than by narrowly targeting a slice of agriculture. With the recent rise in grain prices, PAGG’s holding in the largest U.S. fertilizer producer, the Mosaic Company (MOS), recently reported strong Q3 2012 results. This good earnings news means that PAGG may well produce a profitable fall season and beyond for investors.

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If you invest in PAGG, you may just profit, too.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.

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In case you were under the illusion that the rally in stocks and bonds was anything but a central bank-created construct, then the action in the markets over the past week should disabuse you of that naïve notion. As I’ve been saying for some time now, the easy-money policies of the Federal Reserve, the European Central Bank and, most recently, the Bank of Japan (BoJ) have combined to pump tons of liquidity into the market. This excess liquidity has caused the prices of stocks and bonds to

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