Investors who are looking for alternative investment opportunities to diversify beyond traditional assets in an extended bull market environment should consider global natural resource-related exchange traded funds.
Commodities, like crude oil and gold bullion, may be attractive to investors who are seeking to diversify a portfolio of traditional stocks and bonds, but there is a broader set of global natural resources that anyone can access to maximize the exposure and potential benefits of this asset category.
Specifically, natural resources can keep with inflation and help sustain the purchasing power of an investment portfolio, provide low correlation to traditional stocks and bonds as a way to diversify wealth, and track the spot price with commodities-linked equities, according to an IndexIQ note.
Global natural resource stocks have historically mirrored inflation expectations. Given rising inflationary trends ahead, especially an an ongoing economic expansion, investors may consider allocation to natural resource stocks to hedge against inflation risks.
Natural resources have also exhibited lower correlation to equities and fixed-income assets, which suggests that there may be a diversification opportunity to allow investors to access an asset that may zig if stocks and bonds zag. This may be particularly important in an extended bull where equities are in their ninth positive year and bonds yields are near a three-decade low.
Furthermore, IndexIQ argued that these commodities-linked equities may be a better way for investors to access commodity exposure as equities have proven to be a more efficient method than futures contracts to gain exposure.
Investors interested in the global natural resources space can take a look at broad ETF options, such as the IQ Global Resources ETF (NYSEArca: GRES).
GRES tries to reflect the performance of the IQ Global Resources Index, which uses momentum and valuation factors to identify global companies that operate in commodity-specific market segments and whose equity securities trade in developed markets, including the U.S. Sub-sector segments include the major commodity sectors, like precious metals, industrial metals, livestock, energy, and grains, food & fiber, along with timber, water and coal. The underlying index may also include short exposure to global equities as a partial equity market hedge.
“Traditional products may lack diversification and may not provide a well-balanced exposure to natural resources. GRES seeks to provide investors diversified access to 8 key areas of the global natural resources sector,” according to IndexIQ.
For more information on the markets, visit our sector ETFs category.