With the energy sector on the mend, investors ought to give the FlexShares Morningstar Global Upstream Natural Resource Index Fund (NYSEArca: GUNR) a look. The fund is higher by more than 43% off its 52-week low but may have more gas left in its tank.
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 the economy reopening following the coronavirus shutdown, GUNR could offer more near-term upside. Some data points indicate sell-side analysts remain bullish on energy stocks, including some GUNR components. Valuation may be one reason why. The recent sell-off may have opened up a potential buying opportunity for bargain hunters, especially in the oversold energy sector.
Last week, oil prices exploded to the highest level since early April on optimism related to oil output cuts, and investors risking capital based on hoped that less stringent lockdowns will elevate the demand for fuel as workers begin to repopulate the economic landscape in offices across America and the globe.
Going With GUNR
Natural resources cover energy, metals, agriculture, timber, and water. They provide exposure to the basic economic building blocks, capitalize on supply and demand dynamics, and benefit from short- and long-term inflation drivers. Global populations and living standards are increasing, driving up the collective demand for goods. Additionally, we see that there is a widespread need for global infrastructure development and repair, which require natural resource consumption.
OPEC and its allies achieved a deal to slash oil production by 9.7 million barrels per day in May and June to bolster the price of the commodity, after prices plummeted earlier this year, reaching negative territory for the first time in history recently, as the coronavirus pandemic sunk economic activity and Saudi Arabia and Russia were engaged in a contentious oil-price war.
GUNR provides exposure to the rising demand for natural resources and tracks global companies in the energy, metals, and agriculture sectors while maintaining a core exposure to the timberlands and water resources sectors, is a part of the risk management theme. Some international factors are also contributing to GUNR’s rally.
“Nigeria and Algeria — both members of the Organization of Petroleum Exporting Countries — have lifted the official selling prices for their supply, a sign that they believe customers are willing to pay more their barrels. That would offer some respite after demand was crushed by the fallout from the coronavirus outbreak,” according to Bloomberg.
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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.