Oil prices are perking up to start 2021, but that doesn’t mean energy companies are preparing to be profligate spenders again. In fact, tighter purse strings could benefit energy exchange traded funds, such as the FlexShares Morningstar Global Upstream Natural Resource Index Fund (NYSEArca: GUNR).
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, part of its risk management theme.
With the global economic recovery still uneven, the conservative, diverse positioning offered by GUNR could be of benefit to investors this year.
“Oil and d natural gas prices will average within our medium-term ranges in 2021 as markets keep rebalancing amid an uneven global economic recovery,” according to Moody’s Investors Service. “Sharply diverging growth trajectories between Asia and the US and Europe, and across different industries, will extend an uneven recovery in demand, keeping oil and gas prices volatile and sensitive to changes in supply. A continued recovery in global oil demand depends in part on effective pandemic management around the world.”
Why GUNR Matters This Year
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.
The energy market experienced a dreadful year in 2020, as this was the first time that traditional energy exchange-traded funds fell and renewable energy ETFs rose.
The traditional energy market has been shaky ever since prices fell in 2015 when a glut of petroleum flooded world markets. Supply and demand were supposed to come into balance this year, but the pandemic crushed global demand when the world effectively shut down. Crude-oil prices are hovering around $45 a barrel now, about the mid-point for where prices have traded for the past five years, but a far cry from the $100 a barrel they were trading at 10 years ago.
“The economic strain of the 2020 pandemic will compel integrated oil companies to continue efforts to limit capital investments and preserve cash in 2021. Operating cash flow will improve but remain weak for the integrated oil companies in 2021, and capital spending will remain even with 2020 levels,” says Moody’s. “But many integrated companies will continue to shift spending priorities toward low-carbon efforts, maintaining or even increasing their low-carbon budgets for 2021.”
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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.