One bright spot for the energy patch this year is that many of the names in the group offer value and investors can wade into that proposition with the FlexShares Morningstar Global Upstream Natural Resource Index Fund (NYSEArca: GUNR).
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. With some wild moves in downtrodden energy stocks, the gambling element of energy investing is back, but investors can take some risk out of the equation with GUNR.
“This has been a difficult year for independent oil and gas producers on all fronts, and their stocks have not been immune to the damage,” according to S&P Global Market Intelligence. “Companies that had already seen share prices slide in recent years have been battered over the course of 2020, with most seeing their stocks lose one-third of their value or more since Jan. 1.”
GUNR isn’t entirely dedicated to the energy sector, presenting investors with an adequate means of capturing the potential upside in the sector with an avenue for reducing some of the volatility associated with oil and gas equities.
Indirect Approach, Direct Benefits
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, which is a part of the risk management theme. Plus, the entire energy sector isn’t a wash as some quality names are standing out.
“Hess Corp. and Apache Corp. have had positive news to report during the year due to their positions in oil plays off the coasts of Guyana and Suriname but suffered the same result as other independent producers,” according to S&P Global. “Hess saw its share price drop from $66.86 on the year’s first day of trading to $28.76 March 23; it closed at $47.15 on Sept. 4. Apache shares hit a 2020 high of $33.17 per share Jan. 14 only to tumble to $4 per share April 1. The stock closed at $14.60 per share Sept. 4, or 44% of its mid-January value.”
Some data points indicate sell-side analysts remain bullish on energy stocks, including some GUNR components. Valuation may be one reason why. The recent sell-off may have opened up a potential buying opportunity for bargain hunters, especially in the oversold energy sector.
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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.