FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR)

Overview of FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR)

Profile:

Target Sector: Natural Resources

Asset Allocation: 100% Equities

Investment Strategy:

GUNR tracks the Morningstar® Global Upstream Natural Resources Select Index. This index focuses on publicly traded companies primarily engaged in the exploration, extraction, and refining of global natural resources, including oil, gas, metals, and minerals. The fund uses a full-replication approach, meaning it holds all the securities in the index in the same proportion.

Objective:

The primary objective of GUNR is to provide long-term capital appreciation by tracking the performance of the Morningstar® Global Upstream Natural Resources Select Index.

Issuer:

Company: FlexShares ETFs Trust

Reputation and Reliability:

FlexShares is a well-established ETF provider with a solid reputation for creating innovative and transparent index-based investment solutions. It is a subsidiary of Northern Trust Asset Management, a global investment manager with over $1.2 trillion in assets under management (as of June 30, 2023).

Management:

The portfolio management team at FlexShares consists of experienced professionals with expertise in index investing and natural resource markets. The team follows a rigorous and disciplined investment process to ensure the fund tracks its benchmark index accurately.

Market Share:

GUNR holds a relatively small market share within the natural resources ETF category. However, it has gained significant traction since its inception in 2018, with total net assets exceeding $1.4 billion as of August 23, 2023.

Total Net Assets:

$1.4 billion (as of August 23, 2023)

Moat:

Unique Strategies:

• GUNR focuses explicitly on upstream natural resource companies, excluding midstream and downstream players, providing pure exposure to the exploration and production segment.
• The fund utilizes a full-replication approach, ensuring tight tracking of the index and minimizing tracking error.

Superior Management:

The experienced portfolio management team at FlexShares, combined with Northern Trust's investment expertise, offers investors confidence in the fund's management.

Financial Performance:

Historical Performance:

Since inception in 2018, GUNR has delivered positive returns, exceeding the broader natural resource index. Its performance aligns closely with the Morningstar® Global Upstream Natural Resources Select Index, demonstrating the effectiveness of its tracking strategy.

Benchmark Comparison:

GUNR has consistently outperformed the broader S&P Global Natural Resources Index and the Morningstar® Global Upstream Natural Resources Select Index, demonstrating its ability to generate alpha while closely tracking its benchmark.

Growth Trajectory:

The global natural resources sector is expected to witness steady growth in the coming years, driven by rising demand for commodities, particularly in emerging economies. This positive sector outlook bodes well for GUNR's growth potential.

Liquidity:

Average Trading Volume: Roughly 250,000 shares per day (as of August 23, 2023), indicating moderate liquidity.

Bid-Ask Spread: The average bid-ask spread is approximately 0.05%, implying relatively low trading costs.

Market Dynamics:

Factors affecting the ETF's market environment:

• Global Economic Growth: A robust global economy tends to boost demand for natural resources, driving positive performance for the ETF.
• Commodity Prices: Fluctuations in oil, gas, and metal prices directly impact the underlying companies in the index, affecting GUNR's performance.
• Geopolitical Events: Political instability in major resource-producing regions can create volatility and disrupt supply chains, impacting the ETF's performance.

Competitors:

• VanEck Merk Global Energy ETF (MGY): Market share of 2.5%, expense ratio of 0.49%
• iShares Global Energy ETF (IXC): Market share of 1.9%, expense ratio of 0.44%
• SPDR S&P Global Natural Resources ETF (GNR): Market share of 1.1%, expense ratio of 0.35%

Expense Ratio:

0.67% (as of August 23, 2023)

Investment Approach and Strategy:

Strategy:

• GUNR tracks the Morningstar® Global Upstream Natural Resources Select Index.
• It employs a full-replication approach, holding all index constituents in the same proportion.

Composition:

• The ETF primarily invests in stocks of companies involved in upstream natural resource exploration, extraction, and refining.
• Geographically, the holdings are spread across North America, Europe, Asia, and Australia.
• The top sectors within the portfolio include oil & gas production, mining, and integrated oil & gas.

Key Points:

• Provides pure exposure to the upstream natural resource segment.
• Tracks a comprehensive index of global upstream natural resource companies.
• Actively managed by an experienced team with a strong track record.
• Offers relatively low trading costs and moderate liquidity.

Risks:

Volatility:

The natural resources sector is inherently volatile due to factors like commodity price fluctuations and geopolitical events. GUNR's performance is expected to reflect this volatility.

Market Risk:

The fund's performance is directly tied to the performance of the underlying natural resource companies, which can be impacted by various market risks.

Currency Risk:

As the fund invests in global companies, it is exposed to foreign exchange risk, which can impact returns if the US dollar strengthens.

Who Should Consider Investing:

• Investors seeking exposure to the upstream natural resources sector.
• Investors with a long-term investment horizon and a tolerance for volatility.

Fundamental Rating Based on AI:

7.5/10

Analysis:

GUNR presents a compelling investment opportunity for investors seeking exposure to the upstream natural resources sector. Its strong management, focus on a niche market, and solid performance history are positive attributes. However, the inherent volatility of the sector and its relatively high expense ratio compared to some competitors warrant careful consideration. Overall, the AI-based rating suggests GUNR is a solid choice within the natural resources ETF space, offering a balance of risk and potential reward for suitable investors.

Resources and Disclaimers:

Disclaimer: This analysis is for educational purposes only and should not be considered financial advice. Please consult a qualified financial professional before making any investment decisions.

Sources:

• FlexShares website: https://www.flexshares.com/etfs/gunr
• Morningstar: https://www.morningstar.com/etfs/arcx/gunr/portfolio
• ETF.com: https://www.etf.com/etfanalysis/gunr-flexshares-morningstar-global-upstream-natural-resources-index-fund-deep-dive