As I explained earlier this week, commodities have become difficult to tame as the broad market works its way through this current rough patch. While attempting to target the broad resource spectrum as a whole may be tricky at this time, there are individual segments that are showing promising strength.
Agriculture, for instance, has stood out in recent weeks as crops such as corn and wheat generated headlines. This scenario is boding well for equity-backed ETFs linked to the farming industry.
The veteran Market Vectors Agribusiness ETF(MOO) has enjoyed a welcomed jolt of activity as rising food prices drive investors towards farming-related companies like Mosaic(MOS), Deere(DE), and Monsanto(MON).
According to the May flow data compiled by the National Stock Exchange, MOO topped the list as being the single largest inflow recipient. Over the course of the month the fund gathered $1.4 billion.
Meanwhile, the region’s popularity has also aided younger funds, such as the Global X fertiliser/Potash ETF(SOIL).
fertiliser and potash has become a popular subsector of the farming industry as investors seek ways to benefit as farmers work to boost crop yields. SOIL is designed to hone in on this industry by spreading its assets across 29 related companies around the globe. Top holdings include CF Industries(CF), Yara International, and Potash of Saskatchewan(POT).
In a little over three months, Global X has rolled out four ETFs designed to provide investors with access to various segments of the food industry. Launched in late May, SOIL is the third of these products. Others include the Global X Fishing Industry ETF(FISN), Global X Food ETF(EATX) and the Global X Farming ETF(BARN).
As I’ve noted on a number of occasions, it is usually not a good idea to dive into brand new products such as these. Rather, I typically encourage investors to wait a few weeks or months to see if a young fund can generate enough volume to be considered a stable.
While FISN, EATX, and BARN are still working to gather steam, SOIL already appears to have gotten off to a rousing start. In the two weeks following the fund’s initial launch, SOIL has enjoyed heavy interest. Already, the fund boasts an average trading volume of over 90,000.
SOIL’s impressive initial action bodes well for the fund as it works towards becoming a major force within the ETF industry. However, there are still plenty of reasons to use caution before jumping in.
For one, the fund’s tight investment focus will likely make it inappropriate for conservative minded investors. Additionally, the fund’s track record is still short. In the weeks ahead, investors should keep a watch on the fund to ensure that interest persists.
Food is in focus and investors are clamoring for exposure to the agriculture industry. This, in turn, is aiding ETFs designed to provide investors with access to components of the farming sector.
Looking ahead, MOO continues to stand out as the strongest option dedicated to this corner of the marketplace. However, with interest piqued, young funds such as SOIL could soon become a force to be reckoned with as well. Risk tolerant investors may want to keep this fund on the radar.
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