While commodity and energy prices have been battered over the past 16 months or so, some investors believe prices have nearly bottomed out and expect them to stabilize very soon.
The Fed hike was a small step toward monetary policy normalization and contrarian investors would probably want to revisit the so called “real asset” class following their dramatic decline.
FlexShares, the exchange-traded fund unit of Northern Trust, recently launched a fund-of-funds to provide exposure to both natural resources and infrastructure. The newly launched FlexShares Real Asset Allocation Index Fund (ASET) holds three other FlexShares ETFs including the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA), FlexShares Global Quality Real Estate Index Fund (GQRE) and the popular FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR).
The new fund tracks the Northern Trust Real Assets Allocation Index, a proprietary index that uses a rules-based methodology to optimize the weights of the three constituent ETFs with the aim of reducing the fund’s volatility of returns.
The index also imposes constraints on sector-allocations in an effort to enhance diversification. However, the fund is tilted toward financials (42.31 percent), industrials (16.63 percent), utilities (15.41 percent) and telecom (10.33 percent) as these four sectors nearly make up three quarters of the fund’s total assets.
NFRA tracks the STOXX Global Broad Infrastructure Index and include companies from traditional transportation, utility and energy sub-sectors while maintaining exposure in communications and social infrastructure and government outsourcing.
GQRE follows the Northern Trust Global Quality Real Estate Index and focuses on residential and commercial REITs. Home builders, commercial and residential real estate agents, mortgage REITs, mortgage brokers and bankers and real-estate finance companies are excluded from the index.
GUNR tracks the Morningstar Global Upstream Natural Resource Index and focuses on metals, energy and agricultural sectors along with core holdings in the water resources and timberlands sub-sectors.
Geographically, USA gets the maximum weight (46.38 percent), followed by Japan (9.79 percent), the UK (9.24 percent), Canada (6.37 percent) and Hong Kong (6.31 percent).
Investors looking for income and to hedge inflation may find the new fund attractive.
ASET’s gross annual expense ratio is 1.05 percent, which is on the higher-side of the expense spectrum.
Disclosure: No holdings