Whether it’s oil, copper, or gold, commodity prices and the share prices of commodities stocks are surging. The FlexShares Morningstar Global Upstream Natural Resources ETF (NYSEARCA:GUNR) offers investors diversified exposure to all of these commodities stocks and more at a time when many analysts and observers believe we could be in the early innings of a renewed commodities bull market.
What Is the GUNR ETF’s Strategy?
FlexShares says that GUNR is “for investors seeking the potential of an expanded definition of global real assets.” This is an index fund that invests in an index called the Morningstar Global Upstream Natural Resources Index.
What I like about GUNR’s approach is that while there are many ETFs that specifically invest in oil stocks or metals and miners, GUNR casts a wide net and invests in a wide array of stocks from across the natural resources and commodities space, including metals and mining stocks, energy stocks, and the stocks of agricultural companies. GUNR even invests in companies involved in natural resources like timber and water.
The advantageous mix GUNR offers enables investors to benefit from the upside potential of all these different markets within natural resources. This comes at a time when the sector seems to be gaining renewed momentum.
A New Commodities Bull Market?
Almost everywhere you look, commodities prices are hitting fresh highs. Copper prices recently hit a 15-month high due to rebounding manufacturing activity in the U.S. and China, despite potential supply constraints.
Furthermore, copper and the stocks of copper miners look compelling over the long term as advances in artificial intelligence and high-performance computing could lead to significant demand from data centers. Commodity trader Trafigura forecasts that there will already be a shortage of four to five million metric tons of copper by 2030 and that this new demand from data centers could add another one million metric tons to the shortfall.
Analysts from Citi (NYSE:C) say that we are entering the second secular copper bull market of this century and that there could be “explosive price upside” over the next few years.
Crude oil prices are also climbing slowly but steadily in 2024, and while the move hasn’t gotten much fanfare, the commodity is up 18.6% year-to-date. Demand is increasing as Europe looks to refill its energy reserves, and demand for gasoline in the United States looks like it is picking up ahead of the summer travel season.
At the same time, OPEC+ announced that it will maintain its output cuts until the end of June. Over the long term, oil could still be attractive based on steady demand and lower production due to a lack of long-term investment in new energy projects in recent years.
Lastly, gold continues to perform well, up 14.5% year-to-date just a few months into 2024 as inflation stays hot and geopolitical tensions in many spots around the world bolster its appeal. Analysts from asset manager VanEck recently said that they expect gold to rise above $2,500 per ounce (up from a current price of $2,343) as investors continue to pour money into gold ETFs.
Carlyle Group’s (NASDAQ:CG) chief strategy officer of energy pathways, Jeff Currie, a well-known commodities analyst from his time at Goldman Sachs (NYSE:GS), recently stated that he “want(s) to be long oil and the rest of the commodity complex in this environment” and also stated, “The upside here is significant,” particularly for oil and gold.
GUNR: A Diversified Mix of Commodities Holdings
GUNR offers investors excellent diversification within commodities and natural resource stocks. It invests in 120 stocks, and its top 10 holdings account for just 37.7% of the fund.
Below, you’ll find an overview of GUNR’s top 10 holdings using TipRanks’ holdings tool.
As you’ll probably notice right away, GUNR’s top 10 holdings collectively boast a standout group of Smart Scores. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating.
Nine of GUNR’s top 10 holdings all feature Outperform-equivalent Smart Scores of 8 or above (France’s energy giant TotalEnergies (NYSE:TTE) has a Smart Score of 9, which isn’t displayed in the table above, as it shows the firm’s European-listed shares). Furthermore, energy majors ExxonMobil (NYSE:XOM), Shell (NYSE:SHEL), and Chevron (NYSE:CVX) all have ‘Perfect 10’ Smart Scores.
In addition to these favorable Smart Scores and the diversification in terms of the number of stocks GUNR owns, GUNR also gives investors exposure to a nice mix of natural resources.
As of April 10, GUNR’s holdings provide a very even-handed split between energy, metals and mining, and agriculture. Metals and mining lead the way with a 30.66% weighting within the fund, followed closely by energy, with a 30.58% weighting, and agriculture, with a 27.8% weighting. You can’t really balance it out any better than that. Note that stocks of timber and water companies account for smaller weightings of 4.6% and 4.4%, respectively.
As you can see in the top holdings table, the aforementioned energy giants are joined in the top 10 holdings by agricultural companies like Nutrien (NYSE:NTR), Corteva (NYSE:CTVA), and Archer-Daniels-Midland (NYSE:ADM), plus mining stocks like BHP Group (NYSE:BHP), Freeport-McMoran (NYSE:FCX), and Rio Tinto (NYSE:RIO).
Not only is GUNR diversified in terms of the types of commodities stocks it invests in, but it is also very diversified geographically. The United States makes up the largest portion of the fund, with a 35.8% weighting, followed by Canada at 14% and Australia at 13.5%. No other country accounts for a double-digit weighting, but other countries that the ETF provides exposure to include the U.K., Norway, Brazil, Saudi Arabia, South Africa, and beyond.
GUNR’s Dividend Is Notable
GUNR is also attractive because it is a dividend payer that currently yields 3.4%. This is more than double the S&P 500’s (SPX) current yield of just 1.4%. The ETF has paid dividends for 10 years in a row.
A Moderate Expense Ratio
GUNR charges an expense ratio of 0.46%. This means that an investor putting $10,000 into the fund will pay $46 in fees annually. While this isn’t necessarily a screaming bargain, it’s below the average expense ratio of 0.57% for all ETFs.
Is GUNR Stock a Buy, According to Analysts?
Turning to Wall Street, GUNR earns a Moderate Buy consensus rating based on 62 Buys, 53 Holds, and six Sell ratings assigned in the past three months. The average GUNR stock price target of $45.77 implies 10.2% upside potential.
The Takeaway: Bullish on This Diversified Natural Resources Play
I’m bullish on the GUNR ETF because it provides investors with exposure to a diversified group of natural resource stocks at a time when commodities appear to be in the early stages of a renewed bull market. GUNR provides investors with a nice and even mix of exposure to energy, metals and mining, and agricultural stocks. Furthermore, many of these stocks receive excellent ratings from TipRanks’ Smart Score system. Lastly, GUNR’s 3.4% dividend yield makes it even more attractive.
