Checking In: Another Under The Radar Resources ETF
In what will go down as a tough year for the high beta trade, 2011 has been tough on scores of energy and materials ETFs regardless of how old or new those funds are. Europe's sovereign debt woes, slowing emerging markets growth and plenty of issues within the U.S. economy have chased investors out of volatile energy and materials ETFs into the waiting arms of staples and utilities ETFs.
Said differently, there have been betters to introduce materials ETFs, but give the FlexShares Morningstar Global Upstream Natural Resources Index ETF (NYSE: GUNR) for defying the odds. The 134-stock ETF has raked in almost $151 million in assets under management since its mid-September debut. Hey, that's better than some materials ETFs that have been on the market several years.
GUNR has an expense ratio of 0.48%, which puts its well above the dominant SPDR and Vanguard materials ETFs, but the new ETF does have a story to tell. Tracking the Morningstar Global Upstream Natural Resources Index, GUNR has gained over 6.2% in the past three months,
GUNR spreads out its allocations well as no stock gets a weight of more than 5.34%. Honors for the ETF's largest holding go to Exxon Mobil (NYSE: XOM) and other top-10 holdings read like a who's who of the energy and mining sectors. BHP Billiton (NYSE: BHP), Potash (NYSE: POT), Monasnto (NYSE: MON), Chevron (NYSE: CVX), Rio Tinto (NYSE: RIO), BP (NYSE: BP) and Royal Dutch Shell (NYSE: GUNR) are also among the names in GUNR's top-10 fray.
Something else to consider is GUNR's sector breakdown: 57% materials, 30% energy and, we kid you not, 7% to consumer staples and 4% to utilities. Go figure, but maybe that 11% makes GUNR a little more palatable for risk-averse investors.
Ten countries get allocations worth mentioning in GUNR, but three – the U.S., Canada and the U.K. – account for about 70% of the ETF's weight.
So overall, the FlexShares Morningstar Global Upstream Natural Resources ETF is off to a stellar start, especially when considering the environment, and that AUM total is impressive under any circumstances. And if 2012 delivers the rebirth of the "risk on" trade, then GUNR will be an excellent performer. That much is clear.
However, we leave with a truth that must be acknowledged: In the past three months, GUNR has been sharply outperformed by the Materials Select Sector SPDR (NYSE: XLB) and the Vanguard Materials ETF (NYSE: VAW). As in XLB and VAW have doubled in GUNR's returns in the past 90 days and they've done that with expense ratios of 0.2% and soon to be 0.19% in the case of VAW, respectively.
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