Three ETFs to play the rotation into resources

Andrew Wielandt from DP Wealth Advisory highlights a notable shift as capital moves from banks towards resources, suggesting a rotation that has potential for self-directed investors. Wielandt points out that, since the start of the new financial year, underperforming resource stocks are beginning to gain traction. With stock picking in this sector proving challenging, he advocates using exchange-traded funds (ETFs) targeting resources as a more practical approach.

Wielandt examines three key ETFs, beginning with State Street’s OHSA, which tracks the ASX S&P 200 Resources Index. This ETF is dominated by BHP (ASX: BHP), comprising 39% of holdings, with Woodside (ASX: WDS) and Rio Tinto (ASX: RIO) also featuring prominently. While offering comprehensive sector exposure, it results in heavy concentration risk. The betaShares iShares product, tracking the Solactive Australia Resources Index, is similar, with BHP accounting for 37% and Woodside and Rio Tinto also among the top holdings. Both ETFs reflect comparable performance, with returns down 4% over the last year but up around 9% annually over five years.

For those seeking greater diversification, Wielandt prefers the VanEck MVR ETF, which caps holdings at 8% per company, including BHP, Woodside, and Fortescue Metals Group (ASX: FMG). He notes MVR delivers a more risk-constrained return profile compared to its peers.

Key points:

• Resource sector ETFs present an approach for exposure amid sector rotation
• OHSA and betaShares products carry significant BHP weighting
• VanEck MVR ETF caps holdings for greater diversification
• Recent performance: OHSA and betaShares ETFs down 4% for one year, VanEck MVR flat

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