The energy sector has been a dud this year, but that could change in 2020 and investors ought to be choosy when looking to capitalize on that theme.
There are rumblings that the energy sector, a laggard for much of this year, could be ready to rebound in 2020. Investors can participate in that action without making a full commitment to the sector via the FlexShares Morningstar Global Upstream Natural Resource Index Fund (NYSEArca: GUNR).
“In the U.S., energy stocks are having another disappointing year, capping what has been a lost decade. Energy stocks in the S&P 500 index have returned just 5% this year (including dividends), against a 28% return for the S&P 500, despite a 19% gain in crude to $56 a barrel,” reports Andrew Bary for Barron’s. “The performance is also weak over the past 10 years. The sector is bringing up the rear in the S&P 500 with a 6% annualized return, against 17.8% for the index and 22.7% for the market-leading technology sector, according to S&P.”
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, is a part of the risk management theme.
Balanced Natural Resourses
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.
Population growth, a rising middle class in the emerging markets and recovering economic growth are just some of the reasons behind the growing demand for the world’s dwindling natural resources.
There are some bright spots to consider in the energy patch to consider, including strong balance sheets and capital returns to shareholders. GUNR has a trailing 12-month dividend yield of 3.32%.
“The industry is changing quickly under investor pressure, with nearly every major company emphasizing capital discipline and boosting returns to shareholders through dividends and stock buybacks,” according to Barron’s.
For more information on the energy sector, visit our energy category.
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.