VanEck Vectors Agribusiness ETF (MOO): Has more upside potential in 2022

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The VanEck Vectors Agribusiness ETF (NYSEARCA:MOO) provides targeted exposure to companies involved in sectors such as agrochemicals, fertilizers, farm equipment manufacturing, livestock and meat production, grain farming and related trade specialists. This is a segment that has grown in importance amid the current macro theme of supply chain disruptions contributing to global inflationary tendencies. In fact, higher commodity and food prices are a tailwind for the agribusiness, leading to a 13% gain for the MOO ETF this year. We like the fund for its unique inflationary profile and expect more upside with a positive outlook for the underlying companies.

MOO ETF price

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What is the MOO ETF?

MOO technically tracks the “MVIS Global Agribusiness Index,” which includes eligible companies that derive at least 50% of their revenue from the agribusiness industry while having a market capitalization greater than $150 million. In particular, the methodology specifically excludes companies that derive the majority of their revenue from the sale of packaged food, biodiesel, ethanol or forest products. The index and fund have a modified market capitalization with quarterly rebalancing. The expense ratio for MOO is 0.55%, which is in line with sector and thematic ETFs.

MOO ETF overview

Source: Van Eck

At a high level, the appeal of agribusiness lies in this understanding that a growing world population is driving increasing food demand as a positive long-term growth path. A growing middle class, particularly in emerging markets, is also an important issue for the industry as more consumers consume a variety of foods including larger amounts of protein.

With respect to the MOO ETF, the equity portfolio is globally diversified, with approximately 45% of holdings classified as foreign companies. Another important point here is the cross-industry orientation. While agribusiness is viewed as a sub-industry, the underlying companies capture trends in basic materials, consumer staples, healthcare and industrials with a common connection to the broader food supply chain.

MOO ETF Top 10 Countries and Sector Weights

Source: Van Eck

With a portfolio of 54 stocks, Deere & Co. (DE) is the largest holding in MOO, accounting for 8.3% of the fund. Deere makes sense given its position as the world’s largest manufacturer of farm machinery and equipment. DE shares have outperformed, up 28% this year, making a positive argument for the stock as strong farm prices are supporting demand from farmers to invest in new equipment and expand production.

Germany-based Bayer AG (OTCPK:BAYZF) with a weighting of 8% is a global conglomerate that includes pharmaceuticals, but also agricultural biotechnology, crop protection solutions and agricultural analysis solutions. Zoetis Inc (ZTS) is recognized as the largest animal health company with 7% of the fund, serving the demand for livestock and veterinary products.

In the list of holdings, the diversity of the group with segment leaders stands out. Nutrien Ltd. (NTR) and The Mosaic Co. (MOS) are major fertilizer manufacturers. Archer-Daniels-Midland Co. (ADM) is a global grain processing, logistics and trading company. The position in Tyson Foods Inc. (TSN) with a weighting of 4% highlights the food production side with its global beef, pork and chicken processing operation.

MOO ETF Top 10 Stocks

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MOO ETF Performance

We mentioned that the fund was a winner as MOO has returned 13% so far in 2022, which is an outperformance of the broader market considering the S&P 500 (SPY) is down 8% is. The chart below shows that several of the top holdings in MOO added to the fund’s returns, with Mosaic Co standing out with a 94% YTD rise.

Performance of MOO ETF and holding stocks
Data from YCharts

Companies with exposure to fertilizers, including phosphates and potash, have benefited from tight global supply conditions, which have been further squeezed by the ongoing conflict between Russia and Ukraine. Agricultural traders like ADM, up 44% YTD, and Bunge Limited (BG), up 33% in 2022, were also winners as higher prices for grains like wheat and soybeans boosted their earnings prospects.

The exception at MOO are animal health companies like Zoetis Inc. and IDEXX Laboratories Inc. (IDXX), which are down 23% and 24%, respectively, this year. Part of this dynamic accounts for a recent impact of rising cases of avian influenza (“bird flu”), potentially limiting the size of poultry flocks in the coming year, as headwinds for veterinary supplies. Still, strength in MOO is widespread, with core agribusiness exposures gaining momentum this year.

MOO ETF and Top 10 Holdings 1 Year Total Return
Data from YCharts

MOO ETF price prediction

At a portfolio breakdown, materials sector holdings, which make up nearly a third of the fund, include companies that benefit directly from higher commodity prices such as fertilizers and agricultural products. There is also a component of the fund in consumer staples, which includes companies that are able to pass on inflationary cost pressures through pricing power.

Aside from inflation, the ongoing conflict between Russia and Ukraine remains a key market development. While the situation has caused supply chain disruptions and is partly responsible for higher agricultural prices, the other side is the potential impact on global economic activity. When looking at the MOO ETF, one risk to consider is a deteriorating macroeconomic outlook, which would pressure demand and push commodity prices lower.

However, there is concern that an eventual resolution to the geopolitical crisis could boost economic growth, which would further boost commodity and agricultural prices. In this regard, we see various scenarios where MOO may continue to grow either due to ongoing supply-side challenges or because demand is reaccelerating over time. In the near term, we can say that the environment for the underlying agribusiness company’s cash flows and earnings will be very positive.

VanEck Vectors Agribusiness ETF

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Final Thoughts

We are bullish on the MOO ETF, which is well positioned to continue to recover into ongoing inflationary trends. The fund brings together an interesting group of high quality companies that have the potential to outperform in the current macro environment.

Looking at the ETF price chart, MOO traded in a relatively tight range for most of 2021 before the recent breakout above the $100 price level. The upcoming Q1 reporting season with MOO ETF reports key underlying holdings may be a catalyst for the fund to move to the next level higher.

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