How to Take Some of the Gamble Out of the Energy Sector | ETF Trends

There are times, including the current environment when the energy sector feels like a casino. Among ETFs, the FlexShares Morningstar Global Upstream Natural Resource Index Fund (NYSEArca: GUNR) is one avenue for mitigating some of that risk.

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.

“The energy sector is coming off its best week on record — fueled by oil’s rebound — as improving demand and record supply cuts sparked optimism in the space,” reports CNBC.

GUNR Gains

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.

Importantly, the FlexShares ETF isn’t home to many of the smaller, bankrupt, or near-bankrupt energy producers that are bringing the casino feel back to the energy sector. Rather, GUNR’s energy holdings are large-cap fare which are among the sector’s higher quality names.

“Oil and gas companies have traditionally used debt rather than equity to grow, which jeopardizes their model when oil prices plunge. And while breakeven prices are based on a number of factors,” according to CNBC.

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. Some international factors are also contributing to GUNR’s rally.

That includes the recent agreement by the Organization of Petroleum Exporting Countries (OPEC) to rein in output even as prices are rising.

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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.