Cyclical stocks are rebounding, and that could set the stage for upside for natural resources names and the FlexShares Morningstar Global Upstream Natural Resource Index Fund (NYSEArca: GUNR).
GUNR provides exposure to the rising demand for natural resources, and tracks global companies in the energy, metals, and agriculture sectors. It maintains a core exposure to the timberlands and water resources sectors, part of its risk management theme.
An advantage of GUNR is that although it’s seasoned ETF, its approach to natural resources is fresh relative to competing strategies.
“However, one of the historical drawbacks of natural resource equities is that some legacy indices often provide inefficient sector exposure and may have weaker than expected correlations to inflation. And because these indices have long performance track records, many investors continue to use them. Newer natural resource indices—like the Morningstar Global Upstream Natural Resource Index—can correct for these shortcomings,” according to FlexShares research.
GUNR Mitigating Risk and Beatings Its Benchmarks
GUNR specifically identifies upstream natural resources equities based on a Morningstar industry classification system, with a balanced exposure to three traditional natural resource sectors, including agriculture, energy, and metals. With some wild moves in downtrodden energy stocks, the gambling element of energy investing is back, but investors can take some risk out of the equation with GUNR.
Last year, GUNR performed less poorly than the Bloomberg Total Return Commodity Index and the S&P Global Natural Resources Index. Over the past five years, GUNR generated average annualized returns of 4.7%, beating both of those benchmarks.
“The pandemic has given rise to increased work from home lifestyles, which could impact commercial real estate and in effect construction materials. More time spent at home could also continue to cut into demand for energy,” notes FlexShares. “However, while the end date of the crisis remains unknown, US and global economies will ultimately recover and demand for raw materials should return. And should historical trends continue, commodities and natural resources could continue to offer the potential for income, inflation hedging, and capital appreciation.”
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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.