On a historical basis, cyclical sectors, including materials, have been solid performers in the latter stages of the business cycle. That could spell opportunity with exchange traded funds, such as the SPDR S&P North American Natural Resources ETF (NYSEArca: NANR).
NANR tracks the S&P BMI North American Natural Resources Index, which is a subset of the S&P Global Large MidCap Commodity and Natural Resources Index, according to State Street Global Advisors (SSgA), the third-largest U.S. ETF issuer.
“NANR is designed to meet demand for natural resources equity exposure by providing access to companies in the energy, materials and agriculture industries. NANR provides investors with an approach that weights the sub-sectors of the portfolio 45 percent energy, 35 percent materials and 20 percent agriculture stocks,” according to a statement from SSgA.
NANR is up nearly 2% year-to-date.
Other Late Cycle Ideas
Another idea to consider is the SPDR S&P Global Natural Resources ETF (NYSEArca: GNR), which is also higher by nearly 2% this year.
GNR provides exposure to industries in energy, materials or agriculture that help consumers access the world’s resources. Additionally, even though we are in an expansionary environment, there may be bumps along the way, and investors should have a game plan to hedge the potential volatility.
“Also, crude oil prices are 60% higher since last June, buoyed by Organization of the Petroleum Exporting Countries (OPEC) and Russian production cuts over the past few years removing the supply glut, the looming Iran sanctions and plummeting Venezuelan oil production,” said SSgA in a recent note. “Companies in the energy and materials sectors that are most sensitive to commodity prices may benefit from the cyclical upturn in producer prices.”
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The $717.04 million NANR allocates over 48% of its weight to the energy sector. Materials names represent just over 46% of the fund’s weight.
“In this shifting environment, consider carving out a portion of equity allocations for exposures which are more sensitive to producer price inflation and higher input prices,” advises SSgA.
For more information on the materials sector, visit our materials category.