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John Deere Misses But Shares Up: Agribusiness ETFs in Focus

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Before the opening bell on Aug 16, the world’s largest agricultural equipment maker, Deere & Co (DE - Free Report) reported disappointing third-quarter fiscal 2019 results. The company’s earnings lagged estimates for the sixth straight quarter as the U.S.-China trade war and spring weather disruptions severely impacted sales of its farm equipment. Revenues also lagged the consensus mark. The heavy agricultural equipment giant cut its earnings forecast and announced a review of costs.

Earnings per share came in at $2.71, well below the Zacks Consensus Estimate of $2.80 but up 4.6% from the year-ago period. Revenues dropped 3% year over year to $8.97 billion and were shy of the Zacks Consensus Estimate of $9.3 billion (read: Trump Brings Holiday Cheer for Consumer & Tech Stocks & ETFs).

For fiscal 2019, the farm equipment giant slashed its total sales growth guidance from 5% to 4% and net income view to $3.2 billion from $3.3 billion. Concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions have made farmers cautious about their new equipment purchases and prompted John Deere to trim its projection. However, the company expects equipment sales to increase 4% year over year but agricultural exports to persistently suffer.

The company announced initiation of a series of measures after its production costs shot up by 2 percentage points from the year-ago level in the fiscal third quarter.

Market Impact

Despite the weak results and guidance cut, shares of DE climbed as much as 5.1% on the day on its pledge to lower costs. Currently, John Deere has a Zacks Rank #3 (Hold) and a VGM Score of C. Strong trading might continue in the ETF world as well over the next few days, especially among those with the largest allocation to this farm equipment giant. Below, we have highlighted some of those funds (see: all Materials ETFs here).

iShares MSCI Global Agriculture Producers ETF (VEGI - Free Report)

This fund provides global exposure to 143 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 143 stocks in its basket, Deere takes the top spot at 13.6% share. American firms account for 48% of the assets while Canada, Norway, Japan and Italy round off the next four spots. The ETF is less popular and illiquid with $26.6 million in AUM and around 3,000 shares in average daily volume. It charges 39 bps in fees per year from investors and gained 2.2% on the day after John Deere released earnings results (read: 6 Sector ETFs in Tight Spot on Renewed Trade Tensions).

First Trust Indxx Global Agriculture ETF (FTAG - Free Report)

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 42 stocks in its basket with John Deere occupying the second position at 10.2%. From the perspective of industrial exposure, chemicals take the largest share at 53.2% followed by 23.8% in machinery, equipment & components. Here again, the United States is the top country with 33.9% share while Germany rounds off the next spot with double-digit exposure. FTAG is an overlooked ETF, having accumulated $3.1 million in AUM and trading in average daily volume of under 1,000 shares. It charges 70 bps in annual fees and was flat on the day following John Deere results.

VanEck Vectors Natural Resources ETF (HAP - Free Report)

With AUM of $67.4 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 301 stocks in its basket. John Deere takes the top spot at 7.2% of the assets. Here too, American firms dominate the portfolio with nearly 44.2% share and materials is the top sector with 34%. The ETF charges 50 bps in annual fees and trades in average daily volume of 5,000 shares. It added 0.9% on the day post John Deere results.

VanEck Vectors Agribusiness ETF (MOO - Free Report)

This fund is by far the most popular choice in the space with an AUM of about $649.4 million and average daily volume of 49,000 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 55 securities in its basket with John Deere capturing the third position at 7.5% allocation. It charges 54 bps in annual fees and gained 1.8% of value on the day John Deere reported earnings numbers.

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