In her 17 years as a licensed stockbroker and now as the owner of institutional brokerage firm Divine Capital Markets in New York City, Danielle Hughes has always had an appetite for risk. "I know what it means to go to zero," she says about chances she's taken with her personal portfolio. "I've done it before."
With the volatility of the market these days, Hughes admits she has more of her retirement dollars in cash reserves, but the new mom says part of her still enjoys rolling the dice. So she's putting a portion of her nest egg in the agriculture sector, which has ballooned over the past year. The Dow Jones-AIG Commodity Index has outpaced the broader Dow Jones Industrial Average by 24 percent in the past year. "We haven't seen this kind of rise in the past 10 years," says Hughes, 38, who's confident the sector is a secure long-term bet, despite some possible intermediary pullbacks. For one, the costs of farm-grown commodities like wheat, soybeans and corn are heating up as populations multiply in China, India and other overseas markets. Also increasing demand domestically is the United States' commitment to producing biofuels, especially corn-based ethanol. "Organic farming is in vogue," adds Hughes. Agricultural inflows were nearly $4.6 billion in mid-April, compared with inflows of about $6 billion in all of 2007, according to AIG Financial Products.
What's more, the investment category has widened to include stocks and funds that closely reflect movements in agriculture prices. No need to get caught up in the frantic futures market. Here are some ways to get in on the action.
Only the riskiest investors may want to pick up some ag names that have gotten "fairly expensive," says Michael Church, a portfolio manager with Church Capital Management. That includes Monsanto (MON), which rose more than 90 percent between April 2007 and April 2008. The stock is trading at almost 50 times earnings. Mosaic (MOS), a leading maker of potash crop nutrients, jumped by more than 300 percent. A lower-risk name Church sees is Archer Daniels Midland, which has a "nice base of revenue and nice exposure to ethanol," he says. For more aggressive investors, he suggests fertilizer companies like Agrium (AGU) and CF Industries (CF). "Be careful; these are highly cyclical," says Church. "Some of these stocks have run really hard."
For more diversification, investors can choose from several funds. In April, Van Eck's Market Vectors Agribusiness exchange-traded fund (MOO), which tracks international agribusiness, was up more than 50 percent from when it began trading in September 2007. Assets under management have skyrocketed from $14 million to $1.77 billion in the same period. "You have all these countries that are growing now," says Glenn Smith, a product specialist who works on the MOO account at Van Eck. "Demand is going to grow going forward."
For investors looking for a relatively new ETF tied more closely to the commodities indices, the PowerShares DB Agriculture Fund (DBA) invests in futures contracts for wheat, corn, sugar and soybeans. "That's the most pure way to play the ag components," says Adam Harter, director of operations at Financial Enhancement Group. After all, the DBA tracks actual futures for agricultural commodities. And as of April, it was up about 40 percent since its launch in January 2007.
Hughes bought DBA at $32 a share last December and has since seen it shoot as high as $42. "It's got a lot more room to go," she says. "This story hasn't completely saturated the market yet."
Farnoosh Torabi is a correspondent for TheStreet.com TV and author of You're So Money: Live Rich, Even When You're Not.