The Advisor’s Guide to Diversifying Real Asset Exposure

With inflation at high levels for decades, now is an inopportune time to be underexposed to real assets.

When investors think of “real assets”, physical gold is often the first thing that comes to mind. However, there are other ways to gain exposure to commodities that provide enhanced diversification benefits.

the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR) may be an ideal solution for investors seeking the potential for portfolio diversification and income from a broad definition of real assets.

Market shocks are seen everywhere, even in commodities or real assets, but maintaining a diversified portfolio can help smooth out turbulence.

“We’ve done a lot of academic research and generally we’re seeing markets become more volatile,” said Christopher Huemmer, principal investment strategist for ETFs at FlexShares. “Whether you’re talking about equity markets, fixed income markets or commodity markets, there are more volatility shocks across the board than even after the global financial crisis.”

“That obviously happens in the commodities market. There have been unique stressors, but in general volatility, while increasing across a broad basket of commodities, is not as significant as if you were looking at specific commodities,” Huemmer added.

Some natural resource strategies can lead to over-concentration in industries such as energy and metals, but GUNR offers increased exposure to three sectors that may be overlooked: agriculture, timber and water.

FlexShares research suggests that upstream natural resource companies can be less complex because their costs reside primarily in resource extraction, with minimal processing and delivery to downstream companies. Upstream companies may also benefit from increases in raw material prices, while downstream companies, which must pay these higher prices for their raw materials, may suffer negative impacts.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.