In the middle of the day on Friday we executed a trade for most of our "large" clients. We bought the Global X Fertilizer & Potash ETF (SOIL). Long time blog readers may recall my long term belief that the growth rate of the world population combined with an ascending middle class in countries where there previously was no middle class creates a long term catalyst for increasing demand. This is a theme we have owned in the past. The stocks in this group are volatile but I believe the demand has been and will continue to increase at a steady rate.
SOIL is an upstream, to borrow a term from the energy patch, sort of exposure. I considered buying a farm/plantation company which would be a little further downstream but felt fertilizer and the global footprint of SOIL would be a better way to capture the space but obviously that is the type of thing we will continue to monitor.
As for the fund, I've always thought it is very well constructed index. It covers 15 countries in 25 holdings and owns many companies I've mentioned on the blog in the past. Comparing SOIL to the last couple of purchases for the portfolio, the last two have generous dividend yields and will probably not add a lot of volatility to the portfolio. SOIL on the other hand will be a relatively volatile holding and will not be a meaningful source of yield (it paid out less than 1%).
The fund, as with most stocks in the area, is down a lot, 15.8% since inception last May. Obviously it could go lower but for now we have bought low. This contrasts with our recent purchase of KLA-Tencor (KLAC) where we bought strength. I am a fan of owning various attributes in a portfolio is and this is one example; the willingness to buy weakness and to buy strength.
There is obviously a potentially depressing Malthusian aspect to this investment but it strikes me as an area that benefits from a steady demand, and while I do expect volatility with the position I believe that the demand underlying the theme will prove out to be significant in driving returns.