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Right Place, Right Time for This Materials ETF


There is no dearth of materials ETFs on the market, but most of the funds tracking the second-smallest sector weight in the S&P 500 share at least one thing in common. That being heavy exposure to chemicals and base metals mining names. That is how big materials ETFs such as the Materials Select SPDR (XLB) and that is fine as long as stocks like DuPont (DD) and Freeport-McMoRan (FCX) are working.

Still, that configuration can leave some investors wanting more from a materials and natural resources ETFs and a few ETFs answer that call. One of those more diverse funds has been in rally mode recently, indicating its sub-sector mix could be proof the fund is in the right place at the right time. That ETF is the FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR). [A Unique Resources ETF for Growing Materials Demand]

GUNR, with an annual expense ratio of 0.48%, tracks the Morningstar Global Upstream Natural Resource Index, which holds companies that have upstream operations in agriculture, energy, metals, timber and water. GUNR debuted in September 2011 as one of the first FlexShares ETFs that marked Northern Trust’s (NTRS) re-entry to the ETF business. The fund has since proven highly successful, attracting nearly $2.5 billion in assets.

GUNR tries to maintain weights of 30% to agriculture, energy and mining names, though the current breakdowns are 34.3% to energy, 30.1% to agriculture equities and 22.3% to mining stocks. [FlexShares ETFs Garner $1 Billion in Assets]

While agriculture names such as fertilizer producers have not been impressive performers this year, it is GUNR’s allocations to energy and mining names that has recently driven the fund higher. In the past month, GUNR is up 5.8% compared to about 4.5% for XLB. That proves the difference maker for GUNR is its exposure to oil stocks and mining equities. The U.S. Oil Fund (USO) has surged 14.1% in the past month and GUNR has benefited from that move with a combined 10.4% weight to Exxon Mobil (XOM) and Chevron (CVX).

Additionally, Royal Dutch Shell (RDS-A), BP (BP) and Total (TOT), Europe’s three-largest oil companies, combine for 7% of the ETF’s weight.

It is not just GUNR’s oil exposure that is helping the ETF outpace rival funds. When GUNR’s mining holdings are discussed, that conversation does not end with stocks like Freeport-McMoRan. Rather GUNR’s offers exposure to 15 gold, silver and other precious metals mining names. That does not mean GUNR should be confused with a traditional gold miners ETF, but it does show the fund is a way for conservative investors to participate in further upside for the suddenly high-flying precious metals miners. [Gold Miners ETFs Crosses 50-Day Moving Average for First Time in 9 Months]

GUNR, which has 122 holdings, has a P/E ratio of 16.84 and a price-to-cash-flow ratio of 10.4, according to issuer data.

FlexShares Morningstar Global Upstream Natural Resources ETF

ETF Trends editorial team contributed to this post.

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.