Global natural resources funds have been outperforming the broad U.S. and global markets year to date, an attractive prospect now that the U.S. market has fallen into a bear market. There are four sizable ETFs in this space, almost all of which have seen sizable inflows in 2022.
The largest by far is the $8.4 billion FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR), which launched in 2011 and has an expense ratio of 0.46%. Meanwhile, the SPDR S&P Global Natural Resources ETF (GNR) has $3.7 billion in assets under management and charges 0.40%; it was launched a year before GUNR.
The First Trust Indxx Global Natural Resources Income ETF (FTRI) rolled out in the first quarter of 2010 and has $222 million in assets, with an expense ratio of 0.70%, the highest in this category by more than 20 basis points. The VanEck Natural Resources ETF (HAP) is the oldest fund in the category, having hit the market in the third quarter of 2008, and also the smallest, with just $156.6 million in assets. It comes with an expense ratio of 0.49%.
When it comes to performance, there are some key differences over various time periods. For example, year to date, GUNR blows the other funds out of the water with a return of 16.24%, outperforming even the second-place fund, GNR, which returned 12.63%. FTRI notched an 11.77% return for the same period, while HAP recorded an 8.35% increase. Consider that, year to date, the iShares MSCI ACWI ETF (ACWI) is down 17.32%.
Over the 12-month period, ACWI is again in negative territory, to the tune of 12.49%. At the same time, GUNR is up 18.37% while GNR is up 12.16%. Both FTRI and HAP are up more than 8%.
GUNR again leads over the three-and five-year annualized periods, with a return of 16.63% and 12.9%, respectively. But HAP takes the lead for the 10-year annualized period, with a return of 7.25%, while GUNR returned 6.63%.
In fact, ACWI only outperforms the natural resources ETFs for the 10-year annualized period, with a return of 9.7%.
The four funds all offer slightly different angles on the global natural resources space, with GUNR holding companies that operate in the energy, agriculture, metals, timber or water industries, whereas GNR focuses mainly on companies operating in the metals and mining, agriculture and energy spaces.
FTRI, on the other hand, focuses on the upstream portion of the energy, materials, agriculture, water and timber industries, meaning it covers the segment of the production process devoted to detecting and extracting the targeted materials.
HAP targets hard asset companies that earn at least half of their revenue from the agriculture, alternatives, base/industrial metals, energy, forest products and precious metals sectors.
HAP has the largest portfolio, with 403 securities, while GUNR has 112 and GNR has 79. FTRI has the smallest portfolio, with 51 holdings.
All four funds have the largest allocation to U.S. securities, ranging from a 27.75% weighting in FTRI to a 54.21% weighting in HAP. Three of the four ETFs have the U.S., Canada and the U.K. as their top three countries. FTRI is the sole exception, swapping out Canada for Australia.
|Top 3 Country Weights|
|GUNR||U.S., 36.8%||U.K., 14.75%||Canada, 13.33%|
|GNR||U.S., 36.53%||U.K., 15.45%||Canada, 14.2%|
|FTRI||U.S., 22.75%||Australia, 17.3%||U.K., 17.21%|
|HAP||U.S., 54.21%||Canada, 11.74%||U.K., 5.91%|
When it comes to Thomson Reuters industry group weightings, the top three industries are the same for each fund; namely, energy minerals, process industries and nonenergy minerals. However, each industry has a different ranking within each fund.
Energy minerals is the largest industry for GUNR and GNR, with a weight of roughly 34% in both funds. FTRI’s largest industry is nonenergy minerals, with a weight of nearly 41%, and process industries is the largest industry for HAP, with a weight of 29.33%.
|Top 3 Industry Weights|
|GUNR||Energy Minerals, 33.59%||Process Industries, 25.84%||Non-Energy Minerals, 25.59%|
|GNR||Energy Minerals, 34.27%||Process Industries, 30.29%||Non-Energy Minerals, 29.53%|
|FTRI||Non-Energy Minerals, 40.97%||Process Industries, 27.92%||Energy Minerals, 17.96%|
|HAP||Process Industries, 29.33%||Energy Minerals, 21.68%||Non-Energy Minerals, 18.71%|
There is some overlap among the top 10 holdings of each of the funds. BHP Group Ltd. and Nutrien Ltd. appear in the top 10 holdings of all four funds, though BHP is represented by an American depositary receipt in FTRI’s portfolio.
Exxon Mobil Corp. is the largest security in GUNR, with a weight of 5.8%. It also appears in the top 10 holdings of GNR and HAP. Similarly, Archer-Daniels-Midland Co. is a top 10 holding of three of the four funds, appearing in the top 10 holdings of GUNR, FTRI and HAP.
(Use our stock finder tool to find an ETF’s allocation to a certain stock.)
Given the significant similarities among the four portfolios, it’s not surprising that their factor exposures are also somewhat similar. For each fund, the three biggest factor exposures are value, momentum and yield, with low size, quality and low volatility taking a back seat.
(For a larger view, click on the image above)
(For a larger view, click on the image above)
The factor loadings for momentum range from 0.86 for HAP to 1.05 for GUNR. Momentum is the largest factor loading for all the funds except for FTRI, which has an exposure of 1.08 to yield. The other three funds have loadings to yield between 0.21 for HAP and 0.48 for GNR.
FTRI also has the largest exposure to value at 0.64, while HAP has a loading to the same factor of just 0.32.
Three of the funds have negative factor exposures to low size between -0.14 and -0.28, though HAP has a positive exposure of 0.10.
Although the funds have all outperformed the broad global market by significant margins during 2022, that has not been the case over the longer term. However, this year, natural resources equities are one of the few bright spots in the equity market. That hasn’t been lost on investors, as all four funds have seen inflows year to date, with the lion’s share going to GNR and GUNR.
|Ticker||Fund||Exp Ratio||AUM||# Of Holdings||YTD Flows|
|GUNR||FlexShares Morningstar Global Upstream Natural Resources||0.46%||$8.91B||112||$1.08B|
|GNR||SPDR S&P Global Natural Resources||0.40%||$3.9B||79||$1.24B|
|FTRI||First Trust Indxx Global Natural Resources Income||0.70%||$234.96M||51||$194.81M|
|HAP||VanEck Natural Resources||0.49%||$167.11M||403||$59.81M|
Source: FactSet, data as of 6/10/2022
GUNR seems to be the clear winner in terms of performance, but investors might want to consider the exposures they’re being offered. HAP, with its hundreds of holdings and consumption-linked weightings, takes the broadest view, and might be the best choice for investors who want the scope it offers.
That may not make for the best performance (HAP comes in last place for year-to-date returns, and still outperforms ACWI), but it captures the performance of the entire space, which could prove advantageous in the current environment.
FTRI is a specific bet on the upstream portion of the cycle of natural resources products, which adds another element of risk. Similarly, GNR limits its coverage to three main categories, rather than taking broader views like GUNR and HAP.
Natural resources seems like a good area to allocate to in our current inflationary environment, with the broader equity market suffering. Although it’s had quite the run-up during the first half of the year, there could still be some more runway ahead for the category while the bear market unfolds.
Contact Heather Bell at [email protected]