Play This Top-Ranked Industry With This Sector ETF (SOIL) - Top Yielding ETFs
December 02 2011 - 5:34AM
Zacks
With such an uncertain market, broad allocations across the
equity world seem destined to disappoint investors, at least in the
near term. One way to play the environment could be to seek out
top-ranked sectors and only invest in securities in those spaces.
This strategy may allow investors to only focus in on those sectors
that are poised to rise in the near future while hopefully avoiding
the worst of the downturns that have been prevalent as of late. One
intriguing industry that could fall into this category is the
fertilizer space where growth is abundant and demand could be
nearly recession-proof.
This is because fertilizer is a key component of global food
production and with the ever rising world population, a robust
supply of staple products is becoming increasingly important. This
is especially true given that close to two billion more people are
expected to be living by 2050, putting extra strains on food supply
chains across the world. As a result of this, global fertilizer
consumption has been growing at a steady 3% over the past 15 years
and could continue to surge, especially if current
predictions—which call for a 30% increase in grain and oilseed
consumption by the end of the decade—come to fruition (see Inside
The SuperDividend ETF).
Thanks to these trends, many companies in the fertilizer space
have been able to hold their ground when compared to their peers in
the broad agriculture sector, making them solid investments in this
uncertain time. Furthermore, many companies have seen positive
earnings revisions as of late, helping to push the overall rank of
the sector pretty high when compared to its counterparts. In fact,
the fertilizer sector is currently ranked in the top 20 among all
Industries according to our research, suggesting that the space
could be due for outperformance in the near future. While buying up
any of these stocks could be a decent investment, for those looking
to get broad access to the space an ETF tracking the sector exists
as well, the Global X Fertilizers/Potash ETF (SOIL).
This relatively new fund from the New York-based ETF issuer
tracks the Solactive Global Fertilizers/Potash Index which is a
benchmark of about 30 securities that measures the performance of
the largest and most liquid listed companies from around the globe
that are active in some aspect of the fertilizer industry.
Although the fund is relatively new and has assets of just
under $30 million, SOIL has volume of about 70,000 shares a day
which is enough to produce relatively tight bid/ask spreads for
most investors (see Top Three Precious Metal Mining ETFs).
The fund holds all eight of the securities that are in the Zacks
Industry of Fertilizers including top rated Yara International
(YARIY) as well as highly-rated Agrium (AGU) CF industries Holdings
(CF), and CVR Partners (UAN). The fund also includes weightings to
Intrepid Potash (IPI), Mosaic Company (MOS), Potash Corp of
Saskatchewan (POT) and Sociedad Quimica Minera de Chile (SQM)
although these four are currently rated as 3s . Beyond these firms,
the product also tracks a number of securities that are not ranked
by Zacks—due to their geographic location—but are in the fertilizer
industry nonetheless. So while U.S. stocks take the top spot at
just over 22% of assets, firms from Israel and Canada also make up
more than 10.9% each while firms from a host of emerging markets,
including China, Brazil, Russia, and Chile, also receive decent
sized allocations as well.
This results in a portfolio that is very well diversified from a
geographic perspective, giving allocations across five continents.
Furthermore, no one security makes up more than 6% of total assets
so company-specific risk is pretty much non-existent in the fund.
In terms of performance, SOIL has had a rough time over the past
few months but given the positive earnings revisions in many of the
companies in the space, as well as possibility of a broad market
turnaround, this could change in short-order, especially if firms
live up to their earnings expectations (see Top Three High Yield
Real Estate ETFs).
However, it is important to remember that the fund isn’t a
direct proxy for the fertilizer industry as ranked by Zacks, for a
few reasons. First, the product obviously has a greater number of
securities more than what our rank currently is tracking. As a
result, the rank of the industry could be worse if these other
securities are included (although it could also rise as well).
Secondly, it is important to remember that SOIL tracks companies
that are engaged in some aspect of the fertilizer industry and do
not necessarily have to be entirely devoted to the space. This
could also make the fund deviate from how the Zacks industry
performs as a whole or make the fund outperform (or lag) companies
that have more of their revenues tied to the fertilizer space.
Nevertheless, the product could make for a nice diversified play on
a sector that could be poised to outperform in the near term or at
the very least, surge over the long-term thanks to favorable
demographic trends and rising demands for higher quality food in
the developing world.
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AGRIUM INC (AGU): Free Stock Analysis Report
CF INDUS HLDGS (CF): Free Stock Analysis Report
INTREPID POTASH (IPI): Free Stock Analysis Report
MOSAIC CO/THE (MOS): Free Stock Analysis Report
POTASH SASK (POT): Free Stock Analysis Report
SOC QUIMICA MIN (SQM): Free Stock Analysis Report
CVR PARTNERS LP (UAN): Free Stock Analysis Report
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