Covid-19 or not, the demand for natural resources will always be omnipresent, which makes it an alternative asset option for investors looking to diversify their portfolios. One way is via exchange-traded funds (ETFs) like the FlexShares Morningstar® Global Upstream Natural Resources Index Fund (GUNR).
The month of April saw oil prices turn negative after coronavirus-fearing investors dumped equities in late March. As China continues to recover from the effects of the pandemic, it could be the world’s second largest economy that could have a strong sway in natural resources demand.
“China is targeting another increase in domestic crude production for 2020, despite state-controlled energy firms cutting their upstream investment plans after oil prices slumped earlier this year,” an Argus Media article noted. “The national energy administration (NEA) said producers should target the crude output of 193mn t (3.86mn b/d) in 2020. That would be up by 1.6pc from actual production in 2019.”
Once again, however, the big question remains of how much the pandemic has tamped down demand.
“But the collapse in oil prices in March and the impact of the Covid-19 outbreak on demand has hit upstream firms’ investment outlook, raising questions over China’s longer-term plans to boost domestic production,” the report added further.
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 producers of these goods are called the downstream component and historically have been negatively affected by rising resource prices,” a Flexshares case study for the fund noted. “By adding focused exposure to the upstream market, however, we believe investors can minimize the risk of rising resource prices to their downstream investments.”
“This fund is built by focusing on global companies in the key upstream sectors—energy, metals, and agriculture—balanced with core investments in the timber and water industries,” the case study added. “By taking a diversified approach, the fund seeks to prevent overexposure to any one area in the natural resources field. The fund is then continually rebalanced using our insightful rules-based methodology. As global prosperity and demand for natural resources rise, our upstream index fund provides a great way to build your exposure to the growth potential of the natural resources market.”
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