Among a sea of red in the stock market indexes, there are certain sectors like energy that have been bucking the downward trends. Alternate exposure via upstream natural resources can help ease the current market pain.
The energy sector comprises about 30% of the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR) which could help propel the fund higher. That’s especially the case should oil prices continue to rise, which have been providing strong tailwinds for the energy sector as a whole.
“Oil and natural gas are hot, and so are American energy stocks. But investors, whether they have been along for the ride or are just thinking of joining now, may be wary of getting burned,” a Wall Street Journal report says.
“January through March of this year was the best quarter for the sector since 1970, according to BofA Global Research,” the report adds. “While the S&P 500 is down roughly 13% year to date, the energy sector is up 49%. That follows a year when energy stocks beat the broader index by 21 percentage points.”
GUNR seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Morningstar® Global Upstream Natural Resources IndexSM. The fund will invest at least 80% of its total assets (exclusive of collateral held from securities lending) in the securities of the index and in ADRs and GDRs based on the securities in the index.
The index reflects the performance of a selection of equity securities that are traded in or are issued by companies domiciled in global developed or emerging markets, as determined by the index provider pursuant to its index methodology. The fund comes with a net expense ratio of 46 basis points.
Hedging Against Inflation
Rising commodity prices can allow investors to hedge against inflation via alternate exposure through natural resources. Global investment firm JP Morgan doesn’t see the upside waning for commodities as rising consumer prices continue.
“In dollar terms, the total open interest of commodity futures ex gold stands at around $1.4 trillion, which, although high by historical standards, looks much lower compared to the stock of equities, bonds, and cash in the world,” analysts say.
“And in the current juncture where the need for inflation hedges is more elevated, it is conceivable to see longer-term commodity allocations eventually rising above 1% of total financial assets globally, surpassing the previous highs seen during 2008 or 2011,” JPMorgan says.
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