As the investors deal with the uncertainty regarding the future of the European Union, slowdown in the emerging markets and doubts regarding the economic recovery in U.S., the markets are expected to continue to be volatile in the coming weeks.
Many investors are selling equities and seeking refuge in “safe” government bonds or cash in order to protect their money. However, with the current yields at their all-time lows, bonds (like cash) will result in loss of capital, when taking the inflation into account. (Read: Buy The Ultimate Commodity With These Water ETFs)
In view of the short-term uncertainty, the investors could consider some sectors that are guaranteed to fetch attractive returns in the long-run.
According to the United Nations, global population will grow from 7 billion to almost 9 billion by 2040 and the number of middle-class consumers will increase by 3 billion over the next 20 years.
As a result, the demand for essential resources will rise sharply. By 2030, we will need 50% more food and 30% more water for the rapidly growing population.
Further, the population living in the urban areas will increase from 3.5 billion in 2010 to 4.9 billion in 2030. As the world becomes more urbanized, there would be greater need for investment in infrastructure services. (Read: Five Emerging Market Infrastructure ETFs For The Coming Boom)
Below we have analyzed three top ETFs that will benefit from the exponentially increasing global need for food, water and infrastructure for the booming population.
Market Vectors Agribusiness ETF (MOO)
For investors seeking to benefit from growing demand for food and resulting increase in food prices, the best option is to invest in the most popular agribusiness ETF MOO.
MOO seeks to track the performance of the DAXglobal Agribusiness Index, which provides exposure to companies that derive at least 50% of their revenues from agricultural business.
This ETF was introduced in August 2007 and has proved to be extremely popular choice for investors in this space, attracting more than $5 billion in assets till date. It has returned a negative 3.5% year-to-date. However looking at the longer term, the fund has rewarded the investors with an attractive 20.2% in 3 years. (Read: The Comprehensive Guide to Consumer Staples ETFs)
The ETF currently holds 49 securities, most of which are large cap (84%) companies. Monsanto (MON), Potash Corp. of Saskatchewan (POT) and Deere (DE) are the top three holdings for the fund. The fund is top-heavy with top ten holdings accounting for 57% of the assets.
In terms of country exposure, U.S. (38%), Canada (14%) and Singapore (11%) occupy the top spots. The fund charges expense ratio of 0.56% annually, making it one of the cheapest choices in this space.
An alternative to MOO is PowerShares Global Agriculture Fund (PAGG), which with AUM of 102 million is much smaller and with an expense ratio of 0.75% is more expensive than MOO.
Another option is DB Agriculture Fund (DBA), which uses futures contracts on some of widely traded agricultural commodities. This fund has $1.8 billion in AUM and charges 0.75% in expenses.
PowerShares Global Water Portfolio (PIO)
PIO is a play on global needs for water and it tracks NASDAQ OMX Global Water Index that has a focus on firms in the global water industry. Started in June 2007, this ETF has attracted $215 million in assets and has returned about 13% in the last three years.
Top country allocations are U.S. (41%), U.K. (21%), France (15%) and Brazil (4%). The fund holds 31 securities, which are mainly in the Utilities (49%) and Industrials (35%) sectors. The fund has an annual expense ratio of 75 basis points and has appreciated 1.5% year-to-date.
Another choice for investors in this space is Guggenheim S&P Global Water Fund (CGW), which manages $178 million in assets and charges 0.65% in expenses.
S&P Emerging Markets Infrastructure Index Fund (EMIF)
For infrastructure exposure, it is better to invest in an emerging market focused fund than a broader fund, since most of the growth in this area will be in developing countries. According to a study the demand for infrastructure in emerging markets will reach $1 trillion annually through 2030.
EMIF tracks the S&P Emerging Markets Infrastructure Index, which is a market capitalization weighted index of 30 of the largest publicly listed infrastructure companies in ten emerging markets.
The fund currently has $109 million in AUM in 30 securities. Brazil (33%) takes the top spot in terms of country exposure, followed by China (26%) and Chile (7%). Transport sector has been assigned heaviest weight (41%) while Electric Utilities (28%) and Oil & Gas (11%) occupy the next two spots.
The fund made its debut in June 2009 and has returned 14% since inception (as of March 31, 2012). The expense ratio is currently contractually capped at 0.75% through June 2013 and may go up 5 basis points after that date. Year-to-date, the fund has returned 5% in price terms.
Other choice available to the investors in this space is PowerShares Emerging Markets Infrastructure ETF (PXR), which has $103 million in AUM and charges a similar expense ratio of 75 basis points per year.
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