VIDEO: ETF of the Week: GUNR

Chuck Jaffe: One fund on point for today. The expert to talk about it. This is the ETF of the Week! 

Yes. Welcome to the ETF of the Week, where we get the latest take from Todd Rosenbluth, the head of research at VettaFi. And at VettaFi.com, you’ll find all the tools you need to make yourself a smarter investor in ETFs and to learn about the new, newsworthy, trending, and unique ETFs we discuss here.

Todd Rosenbluth, it’s great to chat with you again!

Todd Rosenbluth: It’s great to be back, Chuck.

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The FlexShares Morningstar Global Upstream Natural Resources ETF. GUNR, or “gunner.”

Chuck Jaffe: Gunner. The FlexShares Global Upstream Natural Resources Index Fund, GUNR. There’s a lot in this. And I dropped the Morningstar out of there, but that’s who puts together the index. Why this fund now?

Todd Rosenbluth: Well, we’re in a time when oil prices have been spiking but volatile based on what’s going on in the Middle East; there are concerns about inflation remaining elevated. And this old fund — I know you talked about “new and newsworthy” — this old fund that’s been around since 2011 has seen strong inflows this year. $600 million plus has gone into this ETF.

It is performing quite well. It offers exposure to some of the sectors that people tend to be underrepresented in a combined portfolio. I thought it was worth a closer look.

Chuck Jaffe: You’ve been talking a lot, as we’ve been doing this in recent weeks and months, about actively managed funds. Why an index fund in this space?

Todd Rosenbluth: So, this is one of the oldest, and the largest, and most liquid of those products. It’s relatively simple in the sectors and industries that it focuses on, but it does it in a rules-based approach. And for many people, that makes a lot of sense. So, there are some newer products that have come to market that offer natural resources exposure in an actively managed way. 

Sometimes simple is quite good. And I think this FlexShares product fits that bill. So, you’re getting exposure to upstream energy companies — Exxon, Chevron, and Shell. You’re getting agricultural companies like Archer-Daniels-Midland. You’re getting exposure to metals and mining companies; Rio Tinto is part of that portfolio. So, you’re getting a healthy mix in a manner that is easy to understand.

Chuck Jaffe: A mix that’s easy to understand. FlexShares has been known to try to put together interesting indexes. Is there — is there any special or “secret sauce” in this one, or is this, because it’s Morningstar, maybe a little more plain vanilla?

Todd Rosenbluth: Well, so Morningstar is the index provider behind this. And then separately — maybe we’ll get to it — Morningstar rates all mutual funds and ETFs, and the fund independently scores very well in terms of the performance record. For the fund, that has nothing to do with the fact that Morningstar is the index provider behind it. I think this is a relatively simple, straightforward, index-based approach.

What is different is we’ve seen people gravitate towards single-sector strategies. So, the Sector SPDR lineup from State Street has seen some interest in its energy sector and seen some interest from time to time in its materials sector. You’re getting the benefit of those two sectors and some of the leading industries within those sectors within this ETF.

And so, that’s one of the reasons that I like it: a multi-sector, index-based approach.

Chuck Jaffe: One of the things that goes unsaid when you’re looking at a fund that has this many words in the title, but also when it’s buying an asset class like natural resources… So, natural resources companies tend to throw off some yield. So, A: What kind of yield do you expect from this kind of fund? And does that make it better for somebody who’s looking a little more for the equity income play than the straight equity kind of play?

Todd Rosenbluth: So, the 12-month yield is over 2% — I think it’s 2.25%. Some of those companies that I mentioned, Exxon and Chevron, have been paying dividends for years. I think they are some of those “dividend aristocrats” that are available in other portfolios. And I think it’s important — I don’t know if it’s what you were getting at, but I’m going to build off of it — many people turn to commodities, and commodities directly, energy directly through oil prices, or agricultural products, or gold directly. 

The benefit of owning the equity companies — one of those benefits — is the dividends: the cash flow that the company is generating and then passing on to shareholders. So, in light of the market volatility that we’ve been having the last month or so, the dividend payments of these companies that you find within GUNR is another added benefit.

Chuck Jaffe: When it’s an index fund, even though I know how you feel about expenses and that they’re not the big determinant, I’m still always going to ask because I think people should know, and because this is not going to be the super-cheap, commodity-like expense ratio that we’d get with an S&P 500 fund — but it still seems pretty reasonable.

Obviously, you’re not too concerned about it; you have picked it as the ETF of the Week. But where does it sit in terms of expense ratios?

Todd Rosenbluth: So, the net expense ratio for GUNR is 46 basis points. It isn’t as cheap as some other individual sector-based products, but I think that’s reasonable. And the performance, as I talked about earlier, has been quite strong relative to other natural resource peer products — some that are cheaper, some that are more expensive. So, I think GUNR is priced reasonably for the exposure that you’re going to get with a rules-based approach.

And I think people should look, as you mentioned, beyond the expense ratio at what’s inside the portfolio and the track record. Given that this fund has been around, I believe, 15 years or close to 15 years, you can see how it’s performed during up and down time periods. It’s a pretty “steady Eddie” performer, and that adds to its appeal in my view.

Chuck Jaffe: And I always, or almost always, ask you how a fund plays with other funds in a portfolio. You mentioned that people can get more granular. Is this a case where this is something you might want to consider an add? Because it’s never for you, “straight up, buy this or not” — it’s always an individual’s decision based on their portfolio.

But if they’ve already got a natural resources fund, or if they have some of those things that are more granular — they’ve gone with the SPDR to say, “I want a piece of it,” etc. — is this a thing that you don’t necessarily need to have more than one of in the same space?

Todd Rosenbluth: So, I don’t think you need more than one natural resources strategy. So, it’s a matter of: Is this one, from a performance standpoint, exposure standpoint, and approach, better than what you currently have? What I think is more likely is people own a broadly diversified strategy tied to the S&P 500. They might have overweighted a sector or style.

Obviously, they might have more than just the U.S. large-cap equity space, but the energy sector is among the smallest sectors in the S&P 500. The materials sector is even smaller. I think combined, those two are roughly 6% of the S&P 500. If you’re tired of how tech has not been performing as well, and tech has been lagging behind and you’re looking for something to augment your broadly diversified portfolio, then GUNR from FlexShares is a good fund to take a closer look at.

Chuck Jaffe: It’s “gunner!” GUNR, the FlexShares Morningstar Global Upstream Natural Resources ETF. GUNR, Global Upstream Natural Resources Index Fund. It’s the ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff as always. Go Blue! 

Todd Rosenbluth: Go Blue!

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And I’m Chuck Jaffe, and I’d love for you to check out my show, which you can do by going to MoneyLifeShow.com or by searching for it wherever you find your favorite podcasts.

Now, if you’re searching for more information on your favorite ETFs, or maybe something we’ve discussed that could be your next favorite ETF, check out VettaFi.com and their suite of tools that’s going to help you out, learn about your funds, and make yourself a better investor. They are on X at @Vetta_Fi, and Todd Rosenbluth, their head of research — my guest — is on X as well; he’s @ToddRosenbluth

The ETF of the Week is here for you every Thursday. Make sure you never miss an episode by following along on your favorite podcast app. And we’ll be back with another fund for you to consider next week. Until then, happy investing, everybody!

Note: This article was created in part through assistance from AI tools. The content has been thoroughly reviewed and edited by the author.

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