A Unique Natural Resource ETF for Growing Demand for Materials
February 4th 2013 at 8:04am by Tom Lydon
Population growth, a rising middle class in the emerging markets and recovering economic growth are just some of the reasons behind the growing demand for the world’s dwindling natural resources. Investors who are interested in this trend can take a look at exchange traded funds that cover natural resource operations.
For instance, the FlexShares Morningstar Global Upstream Natural Resource Index Fund (NYSEArca: GUNR) tries to reflect the performance of the Morningstar Global Upstream Natural Resource Index, which holds companies that have upstream operations in agriculture, energy, metals, timber and water. GUNR has a 0.48% expense ratio.
The ETF has gained 3.4% over the past year. The fund has gathered almost $800 million in assets since its launch on Sept 15. 2011.
The Morningstar index tries to maintain a allocation of 30% to agriculture, energy and metals and a 5% weighting toward timber and water when rebalanced annually in December.
Top holdings include Monsanto Co (NYSE: MON) 5.5%, BHP Billiton (NYSE: BHP) 5.1%, Exxon Mobil (NYSE: XOM) 4.7%, Syngenta (NYSE: SYNN) 4.3% and Potash Corp (NYSE: POT) 4.0%.
Current sector allocations include integrated oil & gas 24.1%, fertilizers & agricultural chemicals 21.1%, diversified metals & mining 17.8%, gold 9.4%, oil & gas exploration 6.2%, agricultural products 5.3%, water utilities 4.1%, paper products 2.6%, specialized REITs 2.0%, precious metals & minerals 1.3%.
Country allocations include U.S. 45.4%, Canada 15.6%, U.K. 11.4%, Australia 7.3%, Switzerland 4.3%, France 2.8%, South Africa 2.0%, Norway 1.4%, Germany 1.3% and Hong Kong 1.2%.
“Despite their volatility, stocks linked to natural resources can provide significant diversification benefits because natural resources are key inputs whose prices inversely affect the profitability of companies in other industries,” according to Morningstar analyst Alex Bryan. “As the prices of the commodities they sell rises, natural resources companies become more profitable, which also makes them a good inflation hedge.”
The U.S. economic recovery has been fueled with rising commodity demand. The heads of major commodities trading houses point to demand for raw materials as a “bight spot” in the U.S..
“The U.S. is doing very nicely. Demand is up,” one New York commodities executive said in a MoneyNews article.
The International Energy Agency said that U.S. oil demand has “surprised on the upside.” Meanwhile, U.S. consumption of base metals and lumber are also up significantly on the rebounding housing sector.
FlexShares Morningstar Global Upstream Natural Resource Index Fund
For more information on sector funds, visit our sector ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.