This year, the market is awash in faltering equity strategies, leaving investors to decide between bad, less bad, and downright ugly.
Owing to persistent inflation, commodities and natural resources exchange traded funds, including those rooted in equities, are providing investors with market-beating returns. The VanEck Vectors Natural Resources ETF (HAP) is part of that group.
HAP, which tracks the VanEck Natural Resources Index, is proof positive that equities-based commodities strategies are providing investors with some shelter from turbulent broader market gyrations this year. The VanEck ETF is beating the S&P 500 by more than 1,400 basis points year-to-date.
While HAP, which turns 14 years old next month, isn’t perfect, its 2022 less bad showing is confirmation it has the goods to help investors survive and potentially thrive in this volatile climate.
“When inflation is high, the best-performing assets are often those tied to basic needs. Food, transportation, electricity, and shelter are the foundation of modern civilization, and commodities and natural resources equities can offer investors exposure to these building blocks,” according to BlackRock research.
From that, it’s not a stretch to infer that it takes a broad approach to adequately capture inflation-fighting potency and exposure to various opportunities in the natural resources landscape. On that note, HAP is highly relevant because it’s not dedicated to a single concept, such as energy. The ETF holds 434 stocks spread across multiple sectors.
“Commodity prices show a higher correlation to inflation than other asset classes in a relationship that is self-reinforcing: Rising commodity prices tend to drive higher inflation which, in turn, propels higher commodity prices. Applying an equity lens, we find that the performance of natural resources equities is driven largely by commodity prices. It follows then that in periods of rising inflation, natural resources equities have delivered strong relative returns,” added BlackRock.
Enhancing the case for HAP is the point that it’s mostly a value fund. For example, materials and energy – two sectors clearly in the value camp — combine for 68.6% of the fund’s weight, according to issuer data. Not surprisingly and to the benefit of investors, HAP’s exposure to growth sectors is scant.
Additionally, HAP offers geographic diversification benefits as domestic stocks represent just 47% of the portfolio. Including the U.S., the ETF has exposure to stocks from more than 20 countries. After the U.S., Canada and Australia are HAP’s next largest geographic allocations.
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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.
