Natural resource producers and miner ETFs are strengthening as the outlook on the global economy turns optimistic and commodity prices rise in the wake of central bank easing.
For instance, the IQ Global Resources ETF (GRES) has increased 6.4% over the past month.
“I think there is opportunity in equities ahead of commodities,” Kevin DiSano, Senior V.P. and National Sales Manager at IndexIQ, said in a phone interview, comparing physical prices and equities to “a rubber band.” [Commodity Producers]
The Global Resources ETF follows global companies that operate in commodity-specific sectors, such as livestock, precious metals, grains, food, fiber, energy, industrial metals, timber water and coal. GRES has a 0.75% expense ratio.
The underlying IQ Global Resources Index utilizes a momentum and valuations driven methodology, and the overall portfolio is rebalanced monthly.
For instance, considering current valuations, the index is underweight the energy and precious metals sectors – GRES had 22.5% of its allocations in precious metals in August but the sector is only weighted at 2.2% as of the start of the month, according to DiSano. Meanwhile, industrial metals and coal have not performed as well and are now trading at cheap valuations.
Additionally, the fund implements a 20% equity market hedge – half in the S&P 500 and half in EAFE countries, which helps “reduce its volatility profile versus commodities and overall equities,” DiSano added.
IQ Global Resource ETF
For more information on sector funds, visit our sector ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
- precious metals