As the global economy expands, investors can capitalize on the greater need for raw materials through an exchange traded fund that tracks natural resource providers.
“Companies linked to natural resources tend to become more profitable as commodity prices rise either through direct sales or indirectly through increased demand from their customers who are engaged in commodity production,” according to Morningstar analyst Alex Bryan.
Bryan argues that the SPDR S&P Global Natural Resources ETF (NYSEArca: GNR) provides a good way to gain exposure to the area and help diversify a portfolio.
GNR includes 104 holdings, with sub-sector allocations toward integrated oil & gas 26.8%, fertilizers & agricultural chemicals 19.1%, diversified metals & mining 18.0%, steel 8.1%, oil & gas exploration 5.7%, paper production 4.8%, agricultural products 4.5%, gold 4.0% and paper packaging 3.5%.
Due to the sector’s close ties with the commodities market, weak demand and lower commodity prices could weigh on the ETF, but Bryan believes that the fund’s balanced portfolio helps diminish volatility. For instance, The PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC) has declined 7.5% over the past three-months but GNR is only down 1.3% over the same period.