Morningstar Magazine - October/November 2016 - 66

Strategies Growing Appetites This VanEck exchange-traded fund is a sensible way to play the growing demand for food across the globe. B E S T I D E A S : PA S S I V E Alex Bryan VanEck Vectors Agribusiness ETF MOO offers global, market-cap-weighted exposure to agribusiness stocks, which should benefit from growth in global food consumption. These include firms that sell agricultural equipment, chemicals, and seeds, such as Monsanto MON, Potash Corp. of Saskatchewan POT, and Deere DE. Just less than half the portfolio is invested in foreign stocks, and the fund does not hedge its foreign-currency exposure. culture commodities in the short run, long-run demographic shifts are favorable for the agricultural industry. Global population growth and increasing meat consumption in emerging markets are sustainable trends that should increase the demand for food during the next few decades. Market prices may fully reflect this long-term growth potential, though the fund's holdings will likely trade at a discount when their near-term prospects are dim. Many of the fund's holdings do not enjoy durable competitive advantages, so competition could erode their profits. Agriculture commodity prices have a significant impact on the performance of most agriculture businesses because their customers' income and demand for inputs, such as tractors and fertilizer, is tied to grain prices. Fertilizer and agricultural chemicals are among the most important yield-enhancing products available to farmers. Companies operating in this subindustry account for about 40% of the portfolio. These include seed and crop chemical companies Monsanto and Syngenta SYT. Innovation and a successful patent strategy are 66 Morningstar October/November 2016 Crop prices have a strong influence on farmers' income and their demand for yield-enhancing chemicals, seeds, and machinery in the short term. But long-term growth in global food consumption is a tailwind that should benefit the fund's holdings. VanEck Vectors Agribusiness ETF MOO Growth of $10K 08/31/2016 Stats 08/31/2016 $ But this fund's performance has been only moderately correlated with commodity prices during the past five years. That's because there are other factors, such as expenses and product life cycles, that can influence these firms' profitability. And demand for yield-enhancing products isn't solely driven by grain prices. Although weather can have an unpredictable impact on the supply and prices of agri- Fertilizer makers, such as Mosaic MOS and Potash Corp., sell commoditized products. There are three major types of fertilizer: nitrogen, potash, and phosphate. The potash industry is oligopolistic and has historically benefited from restricted production, which has kept prices high. But Uralkali upset that pricing power with its decision to pursue a volume-over-price strategy. Nitrogen fertilizer producers, such as CF Industries CF, have to contend with volatile natural gas prices, which is one of their biggest cost drivers. Demand for nitrogen fertilizer is closely linked to corn production, where it is a key input. By 2050, the world's population is expected to grow to 9.7 billion from 7.4 billion today. Most of this growth will come from emerging markets, where incomes are rising. As emerging-markets populations become wealthier, they are projected to increase their consumption of meat, which will have a disproportionate impact on the demand for grain because corn and soy are common ingredients in livestock feed. It requires an estimated five to seven pounds of Fundamental View Despite its global reach, this is a highly concentrated portfolio. Its top 10 holdings account for more than half of its assets and have a significant impact on performance. This concentration coupled with the fund's industry focus can lead to considerable volatility. critical for many of these businesses to stay ahead of competitors. 16K SPDR S&P 500 ETF 14.11 14 11.25 VanEck Vectors Agribusiness ETF 09/2013 09/2014 09/2015 12 10 Morningstar Category Natural Resources Inception Date 10/18/2011 Assets $883.5 million Expense Ratio 0.55% 1-Yr. Total Annual Return 4.03% 1-Yr. Total Rtn Category Rank 29 8

Table of Contents for the Digital Edition of Morningstar Magazine - October/November 2016