With inflation at decades-high levels, it’s an inopportune time to be underexposed to 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.
The FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR) can be an ideal fit for investors seeking the portfolio and income diversification potential of an expanded definition of real assets.
Market shocks are being observed across the board, even in commodities or real assets, but maintaining a diversified portfolio can help mitigate turbulence.
“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, said. “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.”
“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 added.
Some natural resources strategies can lead to overconcentration 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.
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