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John Deere Q2 Results Put Agribusiness ETFs in Focus

Before the opening bell on May 22, the world’s largest agricultural equipment maker, Deere & Co DE reported better-than-expected second-quarter fiscal 2020 results but warned of the impact of COVID-19 on full fiscal sales (read: Follow Warren Buffett With 5 ETF Strategies & Tackle COVID-19).

Earnings per share came in at $2.11, well above the Zacks Consensus Estimate of $1.77 but lower than the year-ago earnings of $3.52. Revenues decreased 18% year over year to $9.25 billion but edged past the Zacks Consensus Estimate of $7.59 billion.

For fiscal 2020, the farm equipment giant expects total sales to fall sharply as the global coronavirus pandemic saps demand for agricultural and industrial equipment. Farm and turf equipment sales will likely decline 10-15% while construction and forestry equipment sales would slump by as much as 40%.  

Market Impact

Despite the solid results, shares of DE fell 1.5% on the day of its earnings announcement. Currently, John Deere has a Zacks Rank #4 (Sell) and a VGM Score of A. This has put ETFs with the largest allocation to this farm equipment giant in focus for the weeks ahead. Below, we have highlighted some of those funds (see: all Materials ETFs here).

iShares MSCI Global Agriculture Producers ETF VEGI

This fund provides global exposure to 140 companies that produce fertilizers and agricultural chemicals, farm machinery, packaged foods and meats by tracking the MSCI ACWI Select Agriculture Producers Investable Market Index. Holding 140 stocks in its basket, Deere takes the top spot at 14.6% share. American firms account for 48.1% of the assets while Norway, Japan, Canada and China round off the next four spots. The ETF is less popular and illiquid with $19.7 million in AUM and around 5,000 shares in average daily volume. It charges 39 bps in fees per year from investors.

First Trust Indxx Global Agriculture ETF FTAG

This ETF follows the Indxx Global Agriculture Index, which is a market-capitalization weighted index, designed to measure the performance of companies, directly or indirectly engaged in improving the agricultural yields. It holds 46 stocks in its basket with John Deere occupying the third position at 9.2%. From the perspective of industrial exposure, chemicals take the largest share at 47.6% followed by 22.9% in machinery, equipment & components. Here again, the United States is the top country with 34.2% share while Germany and Japan round off the next two spots with double-digit exposure each. FTAG is an overlooked ETF, having accumulated $2.5 million in AUM and trading in average daily volume of under 1,000 shares. It charges 70 bps in annual fees.

VanEck Vectors Natural Resources ETF HAP

With AUM of $40.2 million, this fund offers exposure to companies that are involved in the production and distribution of commodities and commodity-related products and services in the following sectors — Agriculture, Alternatives (Water & Alternative Energy), Base and Industrial Metals, Energy, Forest Products, and Precious Metals. It tracks the VanEck Natural Resources Index, holding 307 stocks in its basket. John Deere takes the top spot at 7.3% of the assets. Here too, American firms dominate the portfolio with nearly 44.3% share, and materials is the top sector with 35%. The ETF charges 50 bps in annual fees and trades in average daily volume of 18,000 shares (read: Top & Flop ETFs at Half-Way Q2).

VanEck Vectors Agribusiness ETF MOO

This fund is by far the most popular choice in the space with an AUM of about $521.6 million and average daily volume of 50,000 shares. It tracks the MVIS Global Agribusiness Index, which offers exposure to companies, involved in agri-chemicals, animal health and fertilizers, seeds and traits, farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations, and trading of agricultural products. The fund holds 52 securities in its basket with John Deere capturing the fourth position holding 6.8%. It charges 56 bps in annual fees.

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Deere Company (DE): Free Stock Analysis Report
 
VanEck Vectors Agribusiness ETF (MOO): ETF Research Reports
 
iShares MSCI Global Agriculture Producers ETF (VEGI): ETF Research Reports
 
VanEck Vectors Natural Resources ETF (HAP): ETF Research Reports
 
First Trust Indxx Global Agriculture ETF (FTAG): ETF Research Reports
 
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Zacks Investment Research
 
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