Consequently, hard assets could perform well when inflationary pressures rise, a scenario that could benefit equity-based 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.

When looking at the natural resources space and other hard asset producers, it is important to consider the various industries, such as the differences between the upstream and downstream components of the supply chain.

“In brief, upstream refers to resources still in the ground, while downstream resources are those being processed into intermediate or finished goods,” Carlson said. “An upstream focus offers a clear advantage since investors are in position to benefit from price increases, while those with downstream exposure will be negatively impacted since the cost of goods sold will increase, thereby decreasing profit margins.”

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. The ETF’s portfolio includes 30.2% metals, 30.0% agriculture and 27.5% energy, along with minor weights in water 5.4% and timber 5.3%.

For more information on the commodities market, visit our commodity ETFs category.

CORRECTION: How commodity price increases affect downstream exposure.