How Global Is Your Natural Resources ETF?

by on April 8, 2013 | ETFs Mentioned:

Investments in commodities and natural resources has long been a popular portfolio allocation strategy, as this corner of the market has the potential to offer lucrative and uncorrelated returns. While there are several approaches investors can take, capturing exposure via equities is an appealing option as this strategy avoids the nuances and complexities of futures trading. And thanks to the ETF industry, there are now several ways investors can gain cheap and easy access to producers of natural resources around the globe [Download Free Report: How To Buy The Right ETF Every Time]. 

These broad-based products are compelling tools for investors looking to cast a wide net over the commodity producers’ space, as they offer exposure to a variety of companies involved in the energy, metals and agriculture sub-sectors. Another appealing feature of natural resources ETFs is that they serve as great diversifying agents given their exposure to stocks from around the world. A closer look under the hood of these products, however, reveals several factors investors should be mindful of.

Global Exposure? Yes and NoNatural Resources

Like all ETFs that hold international exposure, these broad-based natural resources funds are subject to the political and economic climate of the countries in which these operations are located. And while all of these ETFs offer exposure to several commodity-rich nations, allocations to U.S. equities make up an overwhelming percentage of the portfolios. Though a heavy tilt towards the U.S. is not necessarily a bad thing, investors should certainly be mindful of it. Many of the funds do, however, offer meaningful exposure towards other developed countries such as Canada, the U.K. and Australia, while also maintaining allocations towards economies with higher growth potentials, such as Russia, Brazil and China [be sure to also check out the Futures Free Commodity ETFdb Portfolio].

The chart below highlights the markets with the heaviest concentration of natural resource companies, based on the holdings of five broad-based natural resources ETFs:

  • Morningstar Global Upstream Natural Resources Index Fund (GUNR, A+)
  • S&P North American Natural Resources Sector Index Fund (IGE, A-)
  • SPDR S&P Global Natural Resources ETF (GNR, A)
  • IQ Global Resources ETF (GRES, B+)
  • Global Natural Resources Fund (GNAT, B+)

Investors should always look into the locations of their natural resources operations, as the geopolitical structure in each country could play a powerful role in the firm’s returns.

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Disclosure: No positions at time of writing.