3 Agribusiness ETFs To Play Potential Fertilizer Merger
A potential merger in the agribusiness industry would create the largest fertilizer firm in the world, based on sales. Yara International ASA (OTC: YARIY), based in Norway, is negotiating with CF Industries Holdings, Inc. (NYSE: CF), but there is no guarantee of a deal.
The combined company would have annual sales of $20 billion, three times that of the largest fertilizer firm in terms of market capitalization, Potash Corp./Saskatchewan (NYSE: POT).
Mergers--even merger talks--can return premiums to investors. With the agribusiness being a true global business model it makes sense for more consolidation in the sector. To play the entire sector, the best strategy is to look at the available agriculture ETFs.
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PowerShares Global Agriculture Port (NASDAQ: PAGG)
PAGG tracks the performance of the most liquid, globally traded companies involved in agriculture and farming related services. It is made up of 43 holdings across 10 countries. As of October 2, the top holdings were Archer-Daniels-Midland Co with a 8.5 percent holding, Potash Corp./Saskatchewan at 8.2 percent and Monsanto Company at 8.1 percent.
PAGG is currently up just 3 percent over the last 12 months, and is even over the last six months. An expense ratio of 0.76 percent makes it more expensive than most of its competitors.
Market Vectors Agribusiness ETF (NYSE: MOO)
MOO gives investors exposure to the overall performance of the agriculture sector. The fund tracks 54 holdings across 21 countries. As of October 7 its top holdings were Monsanto at 8.0 percent, Syngenta Ag at 7.3 percent, and Archer-Daniels-Midland Co coming in at 7.1 percent.
MOO is up 2 percent over the last 12 months, and up just 1 percent over the last six. With an expense ratio of 0.55 percent MOO beats out most of its competitors.
Global X Fertilizers/Potash ETF (NYSE: SOIL)
SOIL aims to provide yield and performance comparable to the Solactive Global Fertilizers/Potash Index.
SOIL is composed of 24 companies that are involved in some aspect of the fertilizer industry. The fund's top holdings include CF Industries Holdings, Inc. with a 6.2 percent holding, NUFARM LTD. making up 5.7 percent of the fund, Terra Nitrogen Company, L.P. at 5.2 percent, and Yara International also at 5.2 percent.
SOIL has struggled, down 5 percent over the last 12 months, and down 3 percent over the last six. An expense ratio of 0.69 percent puts the Global X fund in the middle of its competitors.
Considering the potential deal involves fertilizer companies and the two companies involved make up more than 10 percent of SOIL, investors interested in playing the more concentrated fertilizer stocks and the possible CF/Yara deal should opt for SOIL. Both PAGG and MOO are more diverse plays that will focus on several agriculture-related sectors.
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