By Coulter Regal, CFA Associate Product Manager Van Eck Associates Corporation
Summary
Demand for food and agricultural products is growing. Here we address frequently asked questions about agribusiness and VanEck’s Agribusiness ETF (MOO).
It is no secret that the world’s population is only increasing, and with it the demand for food and agricultural products. With nearly 8 billion people on Earth to feed and clothe, opportunities in agribusiness, or agriculture related businesses, are catching the attention of many investors. In this Q&A, we answer some of the common questions related to agribusiness and VanEck’s Agribusiness ETF (MOO) and why we believe the industry presents an attractive opportunity.
A: Agribusiness is the business sector encompassing farming and farming-related commercial activities. The term represents companies across the agriculture industry, from seeds and fertilizers to farming equipment and food producers. While multi-faceted, agribusiness as a whole is an important industry as it drives efficiencies in agricultural productivity, improves food security and sustainability, lowers food costs, and provides fundamental support for economic growth nationally and globally.
Q: What market environment is best for agribusiness?
A: There is not necessarily one single market environment that is best for the agricultural industry as a whole. The industry is broad and companies operating within different segments of agribusiness may at times perform better or worse than others depending on the prevailing environment. For example, in an environment where short-term crop prices are rising, farmers will want to plant more crops, which may be good for chemicals and equipment manufacturers but bad for segments that buy crops for feed. So, while short-term performance can vary among agribusinesses depending on the environment, generally the industry as a whole is viewed as a long-term investment theme.
Q: How can one invest in agriculture?
A: From owning farmland to buying physical commodities themselves, there are numerous ways to invest in agriculture. However, many options are just simply not practical for most investors or come with drawbacks that must be considered. For example, a direct investment in farmland can require a substantial commitment of capital and come with complexities associated with managing and generating value from the land. Buying physical agricultural commodities, like corn or cotton, can incur transportation and storage costs, while gaining exposure through futures contracts comes with drawbacks such as roll cost. For most investors, exposure to agriculture through the equities of companies operating within the industry is likely the simplest and most appropriate method.
The VanEck Agribusiness ETF (MOO) offers comprehensive exposure to the agribusiness industry by seeking to replicate the MVIS® Global Agribusiness Index (MVMOOTR). The index comprises a globally diversified group of agribusiness companies, including those engaged in agri-chemicals, animal health and fertilizers, seeds and traits, irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations, and trading of agricultural products.
Q: Why invest in agribusiness?
A: At a high level, the rationale for investing in agribusiness is relatively straightforward. As populations continue to grow, so does the need to increase agriculture production. The United Nations (UN) expects the global population to increase by 25% from 7.8 billion today to nearly 10 billion by the year 2050.1 Aside from mounting global population, shifts in consumer preferences and a growing middle class are also demand drivers. The UN estimates that it may take as much as 70% more food production to feed this larger and wealthier population in the coming decades compared to 2015.
Q: Where does MOO fit into a portfolio?
A: From a portfolio perspective, an allocation to MOO, or agribusiness in general, can provide several benefits to investors. MOO can be used as a means to gain access to the long-term growth trend discussed above, as a tool to help enhance portfolio diversification and as a potential hedge to help offset the impact of inflation. Additionally, because of its global scope, MOO can also provide some international equity exposure to a portfolio.
Q: Does MOO generate Schedule K-1 tax statements?
A: No. Unlike an investment in many commodity strategies, the equities of agribusiness companies, and thus MOO, do not generate burdensome K-1 tax statements.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of 3rd party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
An investment in the Fund may be subject to risks which include, among others, investing in agriculture companies, foreign securities, foreign currency, depositary receipts, basic materials sector, consumer staples sector, health care sector, industrials sector, small- and medium-capitalization companies, cash transactions, equity securities, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified and concentration risks, all of which may adversely affect the Fund. Foreign and emerging markets investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, changes in currency exchange rates, unstable governments, and limited trading capacity which may make these investments volatile in price or difficult to trade. Small- and medium-capitalization companies may be subject to elevated risks.
MVIS Global Agribusiness Index is the exclusive property of MV Index Solutions GmbH (a wholly owned subsidiary of the Adviser), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MV Index Solutions GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. The VanEck Agribusiness ETF is not sponsored, endorsed, sold or promoted by MV Index Solutions GmbH and MV Index Solutions GmbH makes no representation regarding the advisability of investing in the Fund.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.
