El Nino Raises Risks: ETF Areas Likely to Benefit

The risk of an extremely strong El Nino is moving higher on corporate agendas as companies prepare for potential disruptions to agriculture, energy demand and supply chains. Scientists have said the "very strong" ‌El Nino in 2026 could be the most troublesome such event since 1950, per Reuters, as quoted on Yahoo Finance.

A review of corporate filings and earnings calls found 478 companies mentioning El Nino across 1,443 documents from May 1 to August 4, with India accounting for nearly 900 mentions, per the same Reuters article.

The threat is particularly significant for agriculture-dependent economies. Hotter, drier and more erratic weather could delay planting, reduce crop yields and pressure food prices. Companies are increasingly stress-testing supply chains and raising capital spending to prepare for flooding, drought and other disruptions.

A Dartmouth College study from 2023 said that the previous major ‌El Nino phases led to huge losses, with the 1982-83 and 1997-98 events causing a loss of $4.1 trillion and $5.7 trillion, respectively, over the following five years, per Reuters, as quoted on Yahoo Finance.

ETF Investment Ideas

For investors, this creates potential opportunities across agriculture, agribusiness, fertilizers, energy, utilities, water infrastructure and commodities.

U.S. farmers and agricultural companies could benefit from higher crop prices if harvests elsewhere are disrupted, while energy producers and utilities may gain from weather-driven increases in power demand and prices.

Broad Agriculture – Invesco DB Agriculture Fund DBA

The fund offers broad exposure to agricultural commodities and could benefit if crop shortages push commodity prices higher. The $1.24 billion-asset fund charges 83 bps in fees. The fund trades at an average daily volume of one million shares. The fund is up 10.7% so far this year.

Sugar – Teucrium Sugar Fund CANE

Among all soft commodities, sugar is among those that are historically sensitive to strong El Ninoconditions. Asian producers like India and Thailand face drought and reduced output. However, another top grower, Brazil, often sees mixed operational conditions and longer-term crop benefits.

The $54 million-asset-ETF CANE charges 100 bps in fees. The fund trades at an average daily volume of 286,500 shares. The fund is up 17.3% so far this year.

Agribusiness – VanEck Agribusiness ETF MOO

The fund offers exposure to fertilizer, farm equipment, agricultural inputs and other companies positioned to benefit from higher farm spending. The fund charges 56 bps in fees and yields 2.21% annually.  

The fund has an asset base of $983 million and trades at an average daily volume of 200,000 shares. The fund is up 11.4% so far this year.

Water – Invesco Water Resources ETF PHO

The fund could gain from increased investment in water infrastructure and drought-management solutions. The $2 billion-asset-fund charges 59 bps in fees and yields 0.57% annually. The fund is up 2% so far this year and 6% over the past month. The fund trades at an average daily volume of 100,000 shares.

Energy – Energy Select Sector SPDR Fund XLE

The fund may benefit if weather-driven changes in power and higher energy demand support commodity prices. The $40 billion-asset fund charges 8 bps in fees, trades at an average volume of 33 million and yields 2.42% annually. XLE is up 40% this year (read: U.S. SPR Falls Fast: What Does it Mean for Oil & Energy ETFs?).

Utilities – Utilities Select Sector SPDR Fund XLU

The fund could benefit from higher electricity demand in regions experiencing extreme heat. The $22.8 million-asset fund charges 8 bps in fees and yields 2.71% annually. The average daily trading volume of the fund is 20 million. XLU is up 2% this year.  

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This article originally published on Zacks Investment Research (zacks.com).

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