Agriculture ETFs and Their Underlying Indexes – DBA, RJA and CROP

Agriculture is the foundation of every other activity, the importance of which is of no doubts. As was pointed out by the legendary investor Jim Rogers, agriculture stocks such as sugar makers has been greatly undervalued in recent years, those who resonate with his point of view ought to try Agriculture thematic ETFs. DBA, RJA, and CROP are some of them.

DBA, PowerShares DB Agriculture Fund, issued by Invesco in January 2007, has $711.65 million AuM. RJA, the Elements Rogers International Commodity Index-Agriculture TR ETN was issued by Swedish Export Credit, also in 2007, but in July, has since obtained $106.8 million. CROP, IQ Global Agribusiness Small Cap ETF, launched to market by IndexIQ in May 2011, has a meager $13.41 million AuM.

DBA tracks DBIQ Diversified Agriculture Index Total Return, aiming to achieve the return from 10 agricultural commodity futures contract, including the top four components of corn, live cattle, sugar, and

Soybeans. It’s worth noting that DBA holds livestock in its universe in exchange for under-weighting heavily produced commodities like corn and wheat. The fund’s structure as a commodities pool means that holders will receive a K-1, a tax document used to report the incomes, losses, and dividends of a partnership required by the Internal Revenue Services (IRS).

RJA tracks Rogers International Commodity Index, investing in 21 of these contracts, such as wheat, corn, cotton, and soybeans. RJA holds front-month futures contracts, so investors get as close to spot as is possible in the markets it covers. Trading activity is robust for an ETN in this segment, with decent volume and generally reasonable spreads (though they can widen quite a bit at times. RJA offers unique exposure to the segment in a convenient ETN format that avoids K-1 distributions.

Both DBA and RJA provide conducive vehicles for investors to trade a basket of agriculture futures.

CROP even is the smallest, offers a more traditional ETF wrapped with a bunch of relevant stocks. CROP tracks IQ Global Agribusiness Small Cap Index, applying XTF ratings, a proprietary statistical analysis of Structural Integrity and Investment Metric producing a score between 0 and 10 with 10 being the best. The Structural Integrity measure quantifies the ETFs structural characteristics such as cost, efficiency, tracking error, liquidity, and capital gains distributions. The Investment Metrics measure quantifies the ETFs investment characteristics such as risk-adjusted performance, earnings yield, dividend yield, momentum, diversification and more. The Structural Integrity and Investment Metric ranking allows investors to make relative comparisons of ETFs fundamentals among all ETFs in the same asset class.

CROP differentiates by allocating most assets to food and tobacco companies” focused on small-caps. While most of the CROP’s competitors include heavy allocations to large chemicals companies, CROP’s strategy tilts it toward smaller food and tobacco companies. It also overweights Japan and China and hugely underweights the US and Canada, making it more international.

Let’s take a look at their historical charts. DBA and RJA displayed a downturn trend in recent years, while CROP is barely able to follow S&P500.

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