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Big ETF Trade Signals Bet on Stronger Commodity Demand


Elevated trading volume in a specialized natural resources ETF on Thursday suggests an institution or group of investors is positioning on a rebound in demand for commodities.

“We saw a noticeable increase in volume in FlexShares Global Upstream Natural Resources (GUNR), which traded about five times average daily volume and was better bid throughout the day,” WallachBeth Capital said in a note. [A Unique Natural Resource ETF for Growing Demand for Materials]

GUNR holds about $2.5 billion of assets and charges a net expense ratio of 0.48%.

The ETF seeks to provide investors exposure to the rising demand for natural resources driven by globalization, according to FlexShares.

“It is one of the first ETFs with a balanced emphasis on the ‘upstream’ portion of the natural resources supply chain, providing coverage of global companies in the energy, metals and agriculture sectors, while maintaining a core exposure to timberlands and water resources sectors,” the ETF manager said.

In terms of sector breakdowns, GUNR has 34.3% in energy, 29.4% in agriculture and 23% in metals.

The fund has a 40.8% allocation to the U.S. but invests in other countries such as the U.K., Canada, Australia, France and China.

“Most of the fund’s holdings have significant operating leverage and cannot quickly adjust production as commodity prices fluctuate. Consequently, they can experience wild swings in profitability,” says Alex Bryan, an analyst at Morningstar, which designed the tracking index for GUNR.

“This sensitivity allows the fund’s investors to profit handsomely from strengthening demand, but it also introduces substantial risk. However, because the fund derives its commodity exposure through equity securities, its performance will not directly correlate with commodity prices,” he added.

GUNR is down about 6% year to date.

FlexShares Global Upstream Natural Resources

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