Natural Resource ETFs A Global Growth Play

September 22, 2017

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article features Gary Stringer, president and chief investment officer of Memphis, Tennessee-based Stringer Asser Management.

According to the latest J.P. Morgan Global Manufacturing & Services Purchasing Managers Index, the global economy grew in August, with output increasing at its fastest pace since April 2015.

This broad-based fundamental strength is being led by economic expansions in the eurozone and the U.S., which we expect to be fairly stable.

 

 

Meanwhile, industrial metals’ prices have been surging, which suggests strong demand as the global economy continues to expand. As Exhibit 2 indicates, industrial metal prices are up nearly 37% over the last 12 months.

 

 

Combined, fundamental economic strength and price momentum from industrial metals lead us to believe the global economy will continue growing, supporting commodity prices.

As commodity prices move higher, stock prices of commodity-related businesses tend to move higher as well, based on the expectation for greater earnings power.

However, the stock price appreciation for these companies has not kept pace with gains in commodity prices, even though earnings for these companies are expected to rise more than 25% over the coming year.

We think this discrepancy creates an opportunity for investors to benefit from higher commodity prices by investing in commodity-based companies.

There are a few options available for investors looking to add dedicated exposure to natural resources, such as the iShares North American Natural Resources ETF (IGE), the SPDR S&P Global Natural Resources ETF (GNR) and the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR).

Here is how those ETFs have performed this year:

 

Chart courtesy of StockCharts.com

 

At the time of writing, Stringer Asset Management held GNR among its universe of ETFs included in its suite of ETF Portfolios. Stringer Asset Management is a Memphis, Tennessee third-party investment manager and ETF strategist. Contact Stringer Asset Management at 901-800-2956 or at [email protected]. For a complete list of relevant disclosures, please click here.

 

S&P GSCI Industrial Metals Spot Index – This Index provides investors with a reliable and publicly available benchmark for investment performance in the industrial metals market.

 

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