The energy sector is finally showing signs of life, and that’s good news for exchange traded funds like the FlexShares Morningstar Global Upstream Natural Resource Index Fund (NYSEArca: GUNR). GUNR jumped more than 15% last month.
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, which is a part of the risk management theme.
Energy’s November resurgence is widely attributable to success on the coronavirus vaccine front. The faster a vaccine comes to market, the more rapidly demand will increase as industry ramps up and Americans unleash pent-up travel demand.
“It is 100% related to the success on the vaccine front and the ability of the market to look through the temporary demand weakness towards a post-COVID world in 2021,” said Eric Nuttall, a partner and senior portfolio manager at Ninepoint Partners.
The GUNR ETF: Catalysts for 2021
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.
“Full recovery will take time, Nuttall said. The S&P 500’s energy sector remains down 36.5% on the year, by far the worst performing of any of the large-cap index’s 11 sectors. Financials, the next worst performing sector, is down 7.5% on the year,” reports S&P Global Market Intelligence.
As a diversified natural resources ETF, GUNR has other catalysts heading into 2021.
Some analysts are growing concerned that global troubles could drag down copper. Along with the trade concerns, copper prices were weakening on softening global economic data. The base metal is a significant component in many industries, including construction, and is widely seen as a barometer for global economic health.
Biden is expected to take a softer approach to dealing with China, and that is viewed as a plus for natural resources stocks because China could up imports of US-produced commodities as relations between the world’s two largest economies improve.
Lastly, GUNR is being buoyed by rotation into cyclical and value stocks, two exposures the ETF is heavily allocated to.
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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.