In this article, we discuss 10 best natural resources ETFs to buy. If you want to skip our discussion on the natural resources market, head directly to 5 Best Natural Resources ETFs To Buy.
As the world accelerates its efforts to innovate and transform itself in technology and lifestyle, our dependence on natural resources only grows. The natural resources sector is made up of a number of industries involved in the research, mining, extraction, commercialization, and utilization of naturally occurring materials. These resources can be classified into three main categories – renewable resources, non-renewable resources, and environmental services and conservation. This article discusses ETFs involved across all these categories.
According to PwC, the revenue for the top 40 mining companies amounted to roughly $711 billion in 2022. Coal remained the largest contributor, with over 28% of total revenues being attributed to coal mining. With the inflation rising and the industry focused on a net-zero emissions policy, the demand for minerals continues to rise. To this effect, roughly 66% of the top 40 mergers & acquisitions in 2022 have been critical-mineral deals. Since 2003, the market capitalization for the top 40 miners has tripled from $400 billion to $1.2 trillion in 2022. Over the past few years, the world has rightfully shifted its focus on generating clean energy. This rapid focus has caused governments to legislate to secure mining supply, while introducing fund initiatives that help stabilize mineral supplies. The Global Mining Leader for PwC Australia, Mr. Paul Bendall, stated:
“Mining is playing a fundamental role in underpinning the global transition to clean energy, but the path ahead is rocky. A net zero world requires more mined critical minerals, not less, and the flow of industry dealmaking clearly reflects this. But the increasing rise of geopolitics as an influencing factor in global mining may complicate operations in an increasingly complex world with new actors.”
Despite the governmental efforts, the inflationary pressure and other global supply chain issues have certainly impacted the natural resources industry as a whole. As perPwC’s annual CEO survey, over 41% of respondents believe that their business would not be profitable in a decade, if these conditions were to continue. The Inflation Reduction Act committed an additional $40 billion dollars for the generation of clean energy. With the government’s injection of public funds in the sector, the industry remains concerned about generating an adequate level of return on these investments. According to the International Energy Agency, the total investment in clean energy is forecasted to grow to $1.7 trillion during this year. While the annual investment in clean energy was expected to increase by 24% from 2021 to 2023, fossil fuel investment was estimated to increase by 15%. The demand for clean energy can be mainly attributed to the renewables and electric vehicles sector. Moreover, residential demand for solar energy is at a record high. The United States managed to raise its solar generation capacity to 5.7 gigawatts (GW), while the wind capacity grew to 7.5 GW, in the first 8 months of 2022. Furthermore, the private investment in renewables crossed $10 billion in the past year, as investors were encouraged by 10-year tax credits.
This article discusses some of the best natural resources ETFs that provide investors with access to market leaders like Southern Copper Corporation (NYSE:SCCO), Danaher Corporation (NYSE:DHR), and Albemarle Corporation (NYSE:ALB).
Best Natural Resources ETFs
Photo by Ruben Sukatendel on Unsplash
Our Methodology
We used an ETF screener and filtered out the best performing natural resources ETFs based on 5-year share price performance. We have also discussed the top holdings of the ETFs to offer better insight to potential investors. These ETFs have amassed significant gains over the past 5 years. The list is ranked in ascending order of the 5-year share price performance of these natural resources ETFs as of October 9, 2023.
Best Natural Resources ETFs
10. Invesco Global Water ETF (NASDAQ:PIO)
5-Year Performance as of October 9: 38.55%
Launched in June 2007, Invesco Global Water ETF (NASDAQ:PIO) tracks the Nasdaq OMX Global Water Index by allocating a minimum of 90% of its overall assets to companies that are engaged in providing water utilities, water treatment services, and water conservation. As of October 9, the ETF held 46 stocks in its portfolio, while maintaining an expense ratio of 0.75%. It is one of the best natural resources ETFs to buy.
Pentair plc (NYSE:PNR) is one of the largest holdings of Invesco Global Water ETF (NASDAQ:PIO). Pentair plc (NYSE:PNR) is a provider for water solutions within three segments – Pool, Water Solutions, Industrial & Flow Technologies. Apart from residential and commercial pool equipment, the company also manufactures pumps and heaters.
According to Insider Monkey’s second quarter database, 33 hedge funds were invested in Pentair plc (NYSE:PNR), as opposed to 34 hedge funds during the past quarter.
9. Fidelity MSCI Materials Index ETF (NYSE:FMAT)
5-Year Performance as of October 9: 41.01%
First introduced in October 2013, Fidelity MSCI Materials Index ETF (NYSE:FMAT) tracks the performance of the MSCI USA IMI Materials 25/50 Index by allocating at least 80% of its assets into securities found within the index. The index includes securities under the materials sector as per the global industry classification standard. As of October 9, the ETF manages total assets worth $439.75 million through a portfolio of 120 stocks, while maintaining an expense ratio of 0.084%.
Linde plc (NYSE:LIN) is the largest holding of Fidelity MSCI Materials Index ETF (NYSE:FMAT). Linde plc (NYSE:LIN) is a global provider for industrial gas in America, Europe, Africa, and the Middle East. According to Insider Monkey’s second quarter database, 70 hedge funds were bullish on Linde plc (NYSE:LIN). This number remained unchanged over the last quarter.
In addition to Southern Copper Corporation (NYSE:SCCO), Danaher Corporation (NYSE:DHR), and Albemarle Corporation (NYSE:ALB), Linde plc (NYSE:LIN) is one of the best natural resources stocks to buy.
Madison Funds had this to say about Linde plc (NYSE:LIN) in its fourth-quarter 2022 investor letter:
“Linde plc (NYSE:LIN) stock was strong during the fourth quarter following a solid third quarter. Linde remains well positioned with the passage of the Inflation Reduction Act and energy transition with carbon dioxide sequestration opportunities, gasification services, and various hydrogen projects. Linde and Schlumberger announced that they entered into a collaboration of carbon capture, utilization, and sequestration (CCUS) projects to accelerate decarbonization solutions across industrial and energy sectors. The collaboration will combine decades of experience in carbon dioxide capture and sequestration. The collaboration will focus on hydrogen and ammonia production where carbon dioxide is a by-product. The International Energy Agency estimates that 6 Gigatons of carbon dioxide will need to be abated with CCUS in order to reach net zero by 2050. During the quarter, Linde also announced that it became a signatory to the United Nations Global Compact (UNGC), the world’s largest corporate sustainability initiative. As a signatory, Linde has committed to aligning its strategy and activities with the UNGC’s Ten Principles across human rights, labor, environment, and anti-corruption.”
8. Materials Select Sector SPDR Fund (NYSE:XLB)
5-Year Performance as of October 9: 45.26%
The goal of Materials Select Sector SPDR Fund (NYSE:XLB) is to mirror the performance of the Materials Select Sector Index. The index represents the materials sector within the S&P 500 Index and provides exposure to companies operating in industries such as chemical, construction materials, containers and packaging, and metals and mining. The ETF was first introduced in December 1998. As of October 9, the ETF manages assets worth $5.2 billion while featuring an expense ratio of 0.10%.
Air Products and Chemicals, Inc. (NYSE:APD) is one of the most significant holdings of Materials Select Sector SPDR Fund (NYSE:XLB). Air Products and Chemicals, Inc. (NYSE:APD) is an international provider for specialty gasses, relevant equipment, and other related services.
According to Insider Monkey’s second quarter database, a total of 43 hedge funds were bullish on Air Products and Chemicals, Inc. (NYSE:APD), as opposed to 48 hedge funds in the preceding quarter.
ClearBridge Large Cap Value Strategy said this about Air Products and Chemicals, Inc. (NYSE:APD) in its Q4 2022 investor letter:
“In the materials sector, Air Products and Chemicals, Inc. (NYSE:APD)’s ability to recover higher energy costs, particularly in Europe as it continues to execute on its growth projects, has helped it to generate a positive return for the year and made it a strong contributor. The capital APD is deploying into hydrogen products globally is finally getting noticed as Europe is looking to diversify away from Russian natural gas and the Inflation Reduction Act (IRA) benefits domestic investments in renewables, such as APD’s $4.5 billion blue hydrogen project in Louisiana and its $4 billion green hydrogen production facility in Texas. APD is also teaming up with World Energy to build a $2.5 billion sustainable aviation fuel production facility in Southern California, a project that should also benefit from the IRA.”
7. SPDR S&P Metals and Mining ETF (NYSE:XME)
5-Year Performance as of October 9: 56.52%
Launched in June 2006, SPDR S&P Metals and Mining ETF (NYSE:XME) aims to achieve similar investment results to that of the S&P Metals and Mining Select Industry Index. The ETF offers exposure to the metals and mining sector of the S&P TMI with companies involved in Aluminum, Coal & Consumable Fuels, Metals & Mining, and Precious Metals & Minerals. As of October 9, the ETF manages total assets worth $1.65 billion, while maintaining an expense ratio of 0.35%.
Alpha Metallurgical Resources, Inc. (NYSE:AMR) is one of the top holdings of SPDR S&P Metals and Mining ETF (NYSE:XME). Alpha Metallurgical Resources, Inc. (NYSE:AMR) is a mining company that specializes in the production of coal. According to Insider Monkey’s second quarter database, a total of 20 hedge funds were bullish on Alpha Metallurgical Resources, Inc. (NYSE:AMR). This number was 21 during the preceding quarter.
Like Southern Copper Corporation (NYSE:SCCO), Danaher Corporation (NYSE:DHR), and Albemarle Corporation (NYSE:ALB), Alpha Metallurgical Resources, Inc. (NYSE:AMR) is one of the best natural resources stocks to invest in.
6. Global X Copper Miners ETF (NYSE:COPX)
5-Year Performance as of October 9: 70.72%
First introduced in April 2010, the Global X Copper Miners ETF (NYSE:COPX) aims to match the price and yield performance of the Solactive Global Copper Miners Total Return Index. This ETF offers investors exposure to a diverse selection of companies engaged in copper mining. As of October 9, the ETF manages total net assets worth $1.43 billion, while offering an expense ratio of 0.65%.
Southern Copper Corporation (NYSE:SCCO) is one of the biggest holdings of Global X Copper Miners ETF (NYSE:COPX). Southern Copper Corporation (NYSE:SCCO) specializes in the exploration, refining, and mining of copper and other minerals worldwide. According to Insider Monkey’s second quarter database, a total of 25 hedge funds were bullish on Southern Copper Corporation (NYSE:SCCO). In contrast, 19 hedge funds held a similar position in the company over the last quarter.
