After lagging the broad global equity market during the AI-powered gains of 2023 and 2024, the Morningstar Global Upstream Natural Resources Index is off to a good start amid the volatility and uncertainty of 2025.
Recent performance is a good opportunity to revisit the reasons investors may want to maintain natural resources exposure in their portfolios. Dan Lefkovitz of Morningstar Indexes makes the case for commodities investing in a recent article—“Why Natural Resources May Be Worth a Look Today,” studying the behavior of the Morningstar Global Upstream Natural Resources Index, which tracks the shares of extraction-related businesses:
- Reason #1—Inflation: Natural resources investing is an effective way to hedge inflation. And while the US inflation rate has come down from 9%, we are seeing the emergence of several inflation drivers including deficit spending, tariffs, geopolitics, natural disasters, and labor shortages.
- Reason #2—The Energy Transition: Renewable energy sources, such as wind, solar, and nuclear, are gaining traction. These new energy sources need natural resources like copper, nickel, lithium, cobalt, and uranium.
- Reason #3—Diversification: The index’s gain in 2022, when the broad global equity market declined by double digits, demonstrates its non-correlated nature. Plus, the technology sector has grown to dominate global equity markets in recent years, so many investor portfolios today are heavily weighted toward US large-cap growth and the Magnificent Seven. Exposure to natural resources companies can be a good diversifier.
Dan Lefkovitz—Strategist, Morningstar Indexes
“The complexion of global equity markets has changed profoundly, and many investors are underexposed to commodities-related businesses. There are good reasons for investors to consider a natural resources allocation within a diversified portfolio.”
Christopher Huemmer—Director of ETF & Funds Strategy, Northern Trust Asset Management
“Real assets are an important third leg of the asset-allocation stool and pair well with stocks and bonds within a portfolio. Natural resource equities are a great way to get commodity-like exposure in a strategic, tax-efficient asset allocation and can benefit investors across the market cycle.”
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