Investor should consider natural resources and commodities-related ETFs to diversify, ride a growing global economy and hedge against potential inflationary pressures.
“While markets continue to overreact to just about every news headline related to natural resources, creating a heightened level of short-term uncertainty, the long-term rationale for investing in natural resource equities and commodities remains as solid as ever,” Andrew Musgraves,
Product Manager for VanEck, said in a note. “Notably, an allocation to natural resources and commodities can provide unique benefits to investors not only as a tool to enhance portfolio diversification, but also as a means to gain direct access to global growth and as a hedge to offset the impact of inflation.”
To fuel a growing global economy, there will be increased demand for raw materials. Consistent global growth tends to be reflected by rising asset prices on all major asset classes and positively impact natural resource equities and commodities.
“In years when global growth has risen from the previous year, or experienced a “positive inflection”, natural resource equities and commodities have dramatically outperformed both U.S. equities and bonds,” Musgraves said.
Natural resource-related stocks and commodities have also historically acted as a hedge against rising inflation, performing well in both rising rate environments and periods of higher-than-average growth in consumer price levels. Moreover, when inflation “surprised” or was higher than expected, natural resource equities and commodities tend to outperform other inflation-hedging assets, like infrastructure, real estate investment trusts and U.S. Treasury inflation protected securities.