It seems that, in some ways, agricultural exchange traded funds (ETFs) may be immune to the financial crisis as they have seen an enormous inflow of assets.
Reasons for this inflow could include the following:
- Agriculture ETFs may have been used as a hedge against food price inflation.
- Some research indicates that commodity storage is near historic lows.
- A supply shock may have been inflicted due to dreadful weather conditions in South America and a reduction in planting in North America, states Gary Gordon of ETF Expert.
- Jim Rogers believes that supply shortages may occur due to tight credit markets and with a combination of this and sound fundamentals commodities will most likely rebound.
- ETFs take the mystery out of investing in commodities and enable the average investor to play the market which was once the exclusive domain of professional traders and wealthy investors.
This doesn’t mean that all commodities and indexes that track commodities are created equal. Know your risk appetite, do your homework, keep transparency in mind and diversify. Also remember one more thing, we suggest utilizing moving averages when going into and out of a position.
One could play the iPath DJ Grains ETN (JJG), which is down 1.28% over the last month; keep in mind that this ETN is heavily influenced by the credit markets and has been flirting with its 50-day moving average.
Another play, which offers more diversity is the PowerShares DB Agriculture Fund (DBA), which is up 0.08% over the last month and has been oscillating above and below its 50-day moving average.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.