With inflation continuing to rise, savvy investors are hiding in real assets.
When investors think of “real assets,” physical gold is often the first thing that comes to mind. However, there are alternative ways to gain commodity exposure that bring optimized diversification benefits.
Having a diversified portfolio is of utmost importance, but so is being diversified within each asset class, especially as baseline volatility in markets continues to increase.
“We’ve done a lot of academic research and in general, we’re seeing markets become more volatile,” Christopher Huemmer, senior investment strategist for FlexShares’ ETFs, says. “Whether you’re talking about equity markets, fixed income markets, or commodity markets, there are more volatility shocks across the board now than even post-global financial crisis.”
Huemmer said these shocks are being observed across the board, even in commodities or real assets, but maintaining a diversified portfolio can help mitigate turbulence.
“That’s obviously taking place in the commodity market. There have been unique stressors, but in general, the volatility, while it’s increasing over a broad basket of commodities, it’s not as large as if you look at specific one off commodities,” Huemmer says.
The FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR) is an ideal fit for investors seeking the portfolio and income diversification potential of an expanded definition of global real assets.
Some natural resources strategies can lead to over concentration in industries such as energy and metals, but GUNR offers enhanced exposure to three sectors that may be overlooked: agriculture, timber, and water.
FlexShares’ research suggests that upstream natural resources companies can be less complex because their costs lie mainly in resource extraction, with minimal processing and delivery to downstream companies. Upstream companies also may benefit from raw material price increases, while downstream companies, which must pay those higher prices for their input materials, may experience negative impacts.
For more news, information, and strategy, visit the Multi-Asset Channel.