Looking to Hedge Inflation? Get Upstream Natural Resources Exposure

Getting commodities exposure can offer a way for investors to hedge out the effects of inflation, and one way is to get exposure to upstream natural resources.

Much like getting commodities exposure, upstream natural resources can capture the upside in rising oil prices or food prices. As global inflation continues to reach new heights, getting this type of exposure is almost imperative in the current market landscape.

“Investing in commodities always gains interest when the specter of inflation rears its ugly head,” a Morningstar article says. “Research shows that commodities tend to be one of the asset classes that is most positively correlated with inflation, as calculated by the Consumer Price Index.”

“The CPI incorporates the prices of commodities like crude oil, natural gas, and agricultural commodities,” the article adds. “Since 1991, energy-related commodities and broad commodity indexes, such as the S&P GSCI and Bloomberg Commodity Index, consistently exhibited the highest level of correlation with inflation of all commodities.”

A Diversified ETF Option

Rather than have specific commodities to address inflation, investors can have diversified exposure via the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR). Having exposure to various commodities can allow investors to capture upside in that particular commodity while limiting concentration risk when that particular commodity price falls.

The fund seeks investment results that correspond generally to the price and yield performance of the Morningstar® Global Upstream Natural Resources 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.

Five categories covered by GUNR:

  1. Energy: crude oil, natural gas, and other processed commodities
  2. Agriculture: grains, soybeans, livestock, and other products
  3. Metals: precious metals and industrial metals
  4. Forest: timberland used for building and paper products
  5. Water: addressing water shortages

“We believe that demand for natural resources is expected to increase for an extended period due to growing populations and rising per-capita income in global markets,” a FlexShares Fund Focus says. “Adding exposure to natural resources investments provides a possible opportunity to capitalize on the potential benefit of rising natural resource product prices. The market forces producing these opportunities may also create the potential to offset some of the longer-term inflationary effects of economic expansion in emerging and established regions.”

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