Want to Invest in Agriculture? Here’s How to Do it

Want to put your money on where your food comes from? This ETF might be for you.

| More on:
edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.

Image source: Getty Images

Exchange-traded funds (ETFs) are great for expressing a thematic investment strategy. They are an active bet on which market sectors are likely to outperform, such as tech, energy, banking, or even psychedelics!

A lesser-known sector tilt is towards the agricultural industry. This industry produces the food we eat, ensuring that we have the most basic of necessities fulfilled. I would consider it the hidden backbone of the economy as we know it. Without food, everything else grinds to a standstill.

Now, I’m not encouraging you to go out and buy a cattle herd. There’s a better, easier way to invest in this essential industry — iShares Global Agriculture Index ETF (TSX:COW).

The best ETF for Canadian agriculture investors

COW gives Canadian investors easy, one-stop-shop exposure to 37 agriculture industry stocks from developed markets around the world. It seeks to replicate the performance of the Manulife Asset Management Global Agricultural Index, net of fees.

These stocks include those of companies involved in the production of agricultural products, fertilizers and agricultural chemicals, farm machinery, and packaged foods and meats. Around 84.44% of the stocks held are from the U.S., while 9.44% are from Italy, 3.06% from Canada, and 2.70% from Israel. Well-known companies held include Nutrien, Tyson Foods, and Rogers Sugar.

COW currently has assets under management (AUM) of $305 million, which is sufficient for liquidity and trading purposes. The fund will cost you a management expense ratio (MER) of 0.72% a year to hold, which is expensive compared to index funds but not so for a thematic fund. COW also pays a small 12-month trailing distribution yield of 0.68%.

How does it perform?

A word of caution: the backtest results provide below are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Hypothetical returns do not reflect trading costs, transaction fees, or actual taxes due on investment returns.

That being said, from 2013 to present, COW has significantly outperformed the S&P/TSX 60 Index, with a higher CAGR, lower volatility, smaller drawdowns, and a better Sharpe ratio, but it underperformed the S&P 500 Index.

The Foolish takeaway

If you have a strong investment thesis around the global agricultural industry, COW may be a good way to express that view. By buying COW, you’re making a bet that the agriculture sector will outperform the broad market. While this could occur during some market cycles, you should also be ready for periods of underperformance and high volatility.

With just 37 holdings all concentrated in one sector, COW isn’t diversified at all and could expose you to more risk than an index fund would. That being said, with more risk usually comes more return. If you are bullish on agriculture and have a long-term perspective, then COW could be an excellent ETF to buy and hold.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool recommends Nutrien Ltd.

More on Investing

worry concern
Dividend Stocks

Worried About a Recession? 2 Canadian Blue-Chip Stocks to Buy and Hold for Dear Life

A recession is worrisome. Buying two blue-chip TSX stocks and holding them for the long term will deliver stable, less…

Read more »

online shopping
Tech Stocks

Why You Should Buy Shopify Stock Before It Rockets Even Higher!

SHOP stock is down 70% from all-time highs. Let's see why it makes sense to buy the dip in February…

Read more »

money cash dividends
Dividend Stocks

TFSA: 3 of the Best Canadian Dividend Stocks to Buy This Year

Are you looking for some of the best Canadian Dividend stocks to buy this year? Here are three great options…

Read more »

Golden crown on a red velvet background
Energy Stocks

3 Canadian Dividend Aristocrats to Buy and Hold for Passive Income

Are you seeking safer options amid elevated market volatility? Consider these three Canadian dividend aristocrats to receive uninterrupted passive income…

Read more »

A colourful firework display
Tech Stocks

3 Venture Capital Stocks That Started 2023 With a Bang

Even if a company starts a year strong, it may not hold that momentum throughout the year. Still, these VC…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

Suncor Energy Stock: Has it Bottomed Out?

Suncor Energy Inc (TSX:SU) stock has been falling lately. Has it bottomed out yet?

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Stocks for Beginners

2 Top Stocks to Buy in February 2023

Here are two of the best Canadian stocks you can buy in February 2023.

Read more »

Aircraft wing plane

Bombardier Stock: Should You Invest in the Current Bullish Trend?

Capturing a bullish trend from beginning to end is an exception, not the rule. In most cases, you will only…

Read more »