3 ETFs, That, Like Hello Kitty, Are Lies

August 28, 2014

2. ‘Natural Resources’ ETFs

ETFs that track any version of the various natural resources indexes all have one thing in common—they’re not actually giving you exposure to natural resources. I’ve talked to countless advisors who think that buying a collection of “natural resources” stocks is just investing in actual oil, gold or timber with a twist. Unfortunately, that’s rarely the case.

Consider how investors in the largest natural resources ETF, the SPDR Global Natural Resources ETF (GNR | A-80) have done this year:

GNR

In this case, they should be happy they’re not really buying commodities—the Goldman Sachs Commodity Index is down almost 8 percent this year, while GNR is up 14 percent. Still, it’s pretty obvious that what you’re buying here is equities, not natural resources.

There’s nothing wrong with GNR—it’s a good fund, delivering what it promises when you dig into the actual mandate, which is to buy stocks of companies related to the space. But companies like Exxon, Mobile and Monsanto are far from perfect proxies for oil and agriculture, and in many cases, the huge, integrated nature of their businesses both dilute their real exposure to the natural resources markets and introduce business cycle risks all their own.

 

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