As world population levels have surged along with developing economies, an increased focus as been put on natural resource development and production in order to increase the average standard of living for the world’s nearly 7 billion people. This rapid increase–along with a variety of natural disasters, such as the devastating wheat crisis in Russia earlier this summer–has put a premium on the world’s natural resources and the companies that harvest or develop them. Following this trend, a number of ETF providers have stepped in to give investors access to this increasingly important sector. The newest foray into this market segment came earlier today when State Street, the Boston based ETF giant best known for its S&P 500 SPDR (SPY) and gold ETF (GLD), launched the newest addition to its product lineup, the Global Natural Resources ETF (GNR).
The new fund will track the S&P Global Natural Resources Index, which is comprised of 90 of the largest publicly traded companies, based on market capitalization, in global natural resources and commodities businesses that meet certain investibility requirements. Companies in natural resources and commodities businesses include those significantly engaged, directly or indirectly, in the following industries: agricultural, forest and paper products; fertilizers and agricultural chemicals; paper packaging; timber real estate investment trusts; integrated oil and gas; oil and gas drilling; oil and gas exploration and production; oil and gas refining and marketing; coal and consumable fuels; diversified metals and mining; steel; aluminum; gold; and precious metals and minerals [also read What Every Investor Should Know About Commodity ETF Investing].
The index includes primarily developed market stocks with float-adjusted market capitalizations of at least $1 billion. Exposure to U.S. companies is limited to 40% of the index, and exposure to emerging markets is limited to 15% of the index. After the U.S., which makes up about 30% of assets, the largest country weightings are given to Canada (13%), the U.K. (11%), and Australia (8%).
The new fund from State Street will likely face heavy competition in its quest to build up a sizable asset base from a variety of entrenched funds. One competitor is the iShares S&P North American Natural Resources Sector Index Fund (IGE), which has amassed over $1.5 billion in assets. But as the name suggests, IGE focuses primarily on North American stocks, where as GNR will maintain a more global focus. Moreover, IGE is overweight in energy securities, which make up close to three-fourths of the fund’s total assets [also read the Complete Guide To Commodity ETF Investing].
Stiff competition also could come from the Thomson Reuters/Jefferies CRB Global Commodity Equity Index Fund (CRBQ) and the Market Vectors RVE Hard Asset Producers ETF (HAP), which have more of an international focus and do not allocate as much to oil and gas producers. GNR will charge an expense ratio of 0.40%, near the low end of the range for the Commodity Producer Equities ETFdb Category. That could help the new fund to stand out relative to its more expensive competitors.
Fund offering “indirect” exposure to commodities have become increasingly popular with investors in recent years, due in part to frustration with the nuances of futures-based products. In addition to the broad-based natural resource ETFs listed above, there are funds focusing on targeted corners of the mining world (gold, silver, platinum, and copper), as well as agribusiness, steel production, and timber.
Disclosure: No positions at time of writing.
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