These ETFs Hit All The Right Diversification Buttons

November 02, 2016

Natural Resource Equity ETFs

There are some excellent, broad-based commodity-producer equity ETFs available to invest in this idea:

Each ETF has merits, but let’s look at the largest of the three. The FlexShares Morningstar Global Upstream Natural Resources (GUNR) has the most trading volume and, as of this writing, the best performance so far this year.

GUNR is unique to other commodity-producer ETFs in a few ways.

First, with its emphasis on upstream (closest to a resource’s location in the ground), GUNR is designed to give investors access to global equity securities. It emphasizes the start of a resource’s supply chain, which should enable it to more fully participate in the rising global demand for natural resources. It is seeking to capture this favorable growth and the price impacts of this trend.

Second, while GUNR emphasizes the basic materials and energy sectors, similarly to other commodity-producer ETFs, it also emphasizes the agricultural sector while maintaining exposure to the water and timber sectors. The ETF’s methodology seeks to prevent any one area of natural resources from dominating or skewing overall exposures or performance.

With this approach, the results have been attractive so far. And moving ahead, given all the buttons this ETF (as well as GNR and IGE) hits, we expect a strong contribution to our portfolio’s long-term, risk-adjusted performance.

At the time of this writing, CLS Investments invests in GUNR and GNR for its clients. CLS Investments is a third-party investment manager and ETF strategist. It began to emphasize ETFs in individual investor portfolios in 2002, and is now one of the largest active money managers using exchange-traded funds. Contact CLS’ Chief Strategist Scott Kubie at 402-896-7406 or at [email protected]. Please click here for a complete list of relevant disclosures and definitions.

 

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