GNR: Natural resources ETF, hedging against high inflation (NYSEARCA: GNR)


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Inflation has been a problem around the world for months and shows no signs of slowing down. Inflation hit 8.3% last August, well above average and above the Federal Reserve’s long-term target of 2.0%. Rising inflation has driven up the cost of life and expenses for most investors, and falling prices for most asset classes, a dreadful combination. Investors are turning to inflation-protected investments, hedges and funds to protect their portfolios and pensions in these difficult times.

The SPDR S&P Global Natural Resources ETF (NYSEARCA:GNR), an equity index ETF investing in global energy, agricultural, metals and mining companies, is one such fund. GNR’s underlying holdings have above-average inflation exposure, and therefore experience strong growth and above-market performance when inflation is high, as is currently the case. GNR is a moderately effective inflation hedge, yields 4.5% and is a buy.

GNR – Basics

  • Investment Manager: BlackRock
  • Dividend yield: 4.5%
  • Expense ratio: 0.15%
  • Total returns 10-year CAGR: 4.1%

GNR – Holdings Overview and Analysis

GNR is an equity index ETF that invests in global energy, agriculture, metals and mining companies. He follows the S&P Global Natural Resources Index, an index of these same securities. It is an incredibly simple index, investing in the 90 largest companies in the aforementioned sectors, subject to a set of basic inclusion criteria. It is a market capitalization weighted index.

Currently, the fund is focused on metals and mining companies, with large energy investments and smaller agricultural investments. These asset allocations simply reflect current market conditions, including sector/company market capitalizations. The sector exposures are as follows.

GNR sector allocations


GNR is a global equity fund, with investments in dozens of countries and the most relevant regions. The fund is currently focused on the Anglosphere, with significant investments in the US, UK, Canada and Australia. These countries have significant energy, agricultural and mineral resources and highly developed equity markets, so it is natural for the fund to focus on them. The country exposures are as follows.

GNR Country Allocation


Finally, the fund currently invests in 102 stocks, above its target of 90 stocks. The difference is explained by nominal investments in a dozen securities, most of which are of no consequence for the fund or its investors. GNR’s largest holdings are as follows.

GNR largest holdings


GNR – Inflation Exposure

GNR focuses on industries whose revenues and profits are highly dependent on raw material and input prices. Energy companies, for example, are highly dependent on energy prices for their revenues, profits and overall shareholder returns. Companies like Exxon (XOM) and Chevron (CVX) perform well when oil prices are high, not so well when oil prices are low. The same is true for agricultural companies and agricultural prices, and for mining companies and mineral prices.

These three industries and prices tend to be the main drivers of inflation. Energy, basic materials and metals are inputs for most consumer and industrial goods, so when their prices rise, the price of everything also increases. Agricultural products and prices are important to all consumers, we all need to eat, so rising prices in this sector tend to be felt acutely by everyone. Thus, energy, agriculture, metals and mining companies all tend to outperform when inflation is high, as it has been the case since the start of the year, especially for companies energy.

XLE, XME, FTAG, SPY Total Return Price % Change
Data by Y-Charts

GNR focuses on industries and companies that outperform when inflation is high, so the fund naturally outperforms under these conditions as well.

GNR, SPY % change in total return price
Data by Y-Charts
GNR outperforms when inflation is high, a significant benefit for the fund and its shareholders, and which could easily lead to significant returns in the months ahead. Inflation remains very high, having recently reached 8.3%, well above average. On the other hand, the Fed is aggressive hiking rate, which should lead to lower inflation sooner or later. In my view, inflation will stay elevated for a few more months before normalizing later in the year, but I’ve been thinking about this for quite a while, and inflation has turned out to be more persistent than expected.

The underlying holdings of GNR depend on prices for their revenues and profits, these should therefore remain solid even if inflation normalizes somewhat. Returns to shareholders would follow. For example, the underlying holdings of GNR currently have an earnings yield of 16.0%. Assuming there are no more price increases, which is equivalent to saying that inflation falls to zero, long-term shareholder returns should roughly equal to 16.0%, a bit higher once you factor in organic growth. The fact is that the underlying holdings of GNR are incredibly profitable at presentwith running prices. Further price increases / inflation would almost certainly benefit the fund, but the conditions are quite solid at present regardless of.

On a more negative note, GNR’s high inflation exposure works both ways: the fund outperforms when prices are high and up, underperforms when prices are down and down. Expect deep losses and underperformance during the commodity price crisis, as seen in the early 2010s. GNR is down over 27% from its inception to the start of 2016, while the S&P 500 rose more than 100% for the same. These results were disastrous for the fund and would almost certainly occur in any future commodity price crisis.

GNR, SPY % change in total return price
Data by Y-Charts

GNR – Dividend Analysis

GNR currently boasts an above-average dividend yield of 4.5% as rising commodity prices boost revenue, earnings and, of course, dividends from its underlying holdings. The fund’s performance is good, if not fantastic, on an absolute basis, and slightly above the equity market average.

GNR, SPY, VT, VTI, QQQ Dividend yield
Data by Y-Charts
GNR’s dividends have also seen strong growth since its inception, with average dividend growth exceeding 20% ​​per year over the past five years. Growth has accelerated, reaching +60% over the last twelve months. While recent growth numbers are unlikely to hold up, the fund’s long-term dividend growth track record is fantastic and commodity prices remain high, so further growth looks likely.

GNR – Performance Analysis

GNR’s performance is highly dependent on commodity prices, and its track record reflects this. The fund tends to outperform when commodity prices are high, as they have been for the past twelve months. The fund tends to underperform when commodity prices are low, as was the case in the first half of the 2010s. As commodity prices have most declined/been weak over the past decade, the fund has underperformed since the same.

GNR’s long-term underperformance is negative for the fund and its shareholders, but I am confident that future performance will be significantly better. Economic conditions and sector valuations are very different today than in the past, so performance should be very different as well.

RNG performance – Chart by author

Conclusion – Buy

GNR’s underlying holdings are exposed to above-average inflation and therefore experience strong growth and above-market performance when inflation is high. GNR is an effective inflation hedge, yields 4.5% and is a buy.


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