ETF Spotlight: Global Resources

Includes: GRES
by: Tom Lydon

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 (NYSEARCA: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."

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

(Click to enlarge)

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.