ETF Areas in Focus on Wall Street's Inflation Data Jitters
Inflation worries are keeping Wall Street in a tight spot. Notably, the Dow Jones Industrial Average and the S&P 500 indexes were mostly flat on Jun 8. Investors are desperately waiting for the latest reading on inflation levels. It is worth noting here that the Consumer Price Index (CPI) for May will be announced on Jun 10. According to a CNBC article, the CPI is projected to increase 4.7% year over year, per Dow Jones.
In this regard, Edward Moya, senior market analyst at Oanda, has commented that “US stocks have largely been stuck in a range since mid-April and don’t seem likely to be breaking out anytime soon. Investors want to see how hot pricing pressures get and how much downside in equities will occur once the Fed’s taper tantrum begins,” per a CNBC article.
Investors are increasingly concerned that rising inflation may hurt corporate margins and profits. They also fear that the consistent rise in inflation may build pressure on the Federal Reserve to tighten the monetary policy, according to a CNBC article.
Notably, market participants are eagerly waiting for the Federal Reserve’s FOMC meeting scheduled for Jun 15-16. Treasury Secretary Janet Yellen’s comment that higher interest rates "would actually be a plus for society's point of view and the Fed's point of view," per an interview with Bloomberg, are keeping investors on the edge over concerns about interest rate hikes.
Notably, inflation levels rose at the fastest speed since 2008 in April. Notably, the CPI rose 4.2% year over year in comparison with the Dow Jones estimate of a 3.6% rise, per a CNBC article. The Producer Price Index in April expanded 6.2% from the year-ago month, representing its biggest expansion in a decade.
The increasing concerns about the U.S. inflation levels continue to dampen U.S. consumer sentiments. Notably, the University of Michigan’s consumer sentiment index declined to 82.9 in May from 88.3 last month. The reading remained mostly flat with May's preliminary reading of 82.8. The metric also remained on par with economists’ forecasts, per a Reuters poll.
Gold ETFs to Hedge Inflation
Considering the current scenario, gold prices have been rising. The inflationary backdrop in the United States is favorable for gold as the metal is viewed as a hedge against inflation. Moreover, rising inflation often lowers the value of the concerned currency. If the greenback remains subdued, gold will gain some glitter back. Also, analysts at the Morgan Stanley expect the yellow metal to maintain prices above $1,700 an ounce through the second half of the year, as mentioned in a Bloomberg article.
Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM and GraniteShares Gold Trust BAR are some of the popular ETFs. These funds carry a Zacks ETF Rank #3 (Hold). Below we have discussed these in detail:
This is the largest and most popular ETF in the gold space, with AUM of $63.05 billion and average three-month trading volume of 8.3 million shares. The fund reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of this ETF represented about 1/10th of an ounce of gold. The expense ratio is 0.40% (read: Time to Tap the Undervalued Status of Gold? ETFs in Focus).
This ETF offers exposure to the day-to-day movement of the price of gold bullion. It has AUM of $30.50 billion and trades in a solid three-month volume of 11.1 million shares, on average. At launch, each share of this ETF represented about 1/100th of an ounce of gold. The ETF charges 25 basis points (bps) in annual fees (read: Gold ETFs to Shine Bright on Rising Prices Amid Inflation Woes).
TIPS ETFs at Rescue
TIPS ETFs offer robust real returns during inflationary periods unlike its unprotected peers in the fixed-income world. It not only provides shelter from increasing prices but also protects income for the long term. While there are several options in the space to tap rising consumer prices, we have highlighted the four popular ETFs that could be compelling investments -- iShares TIPS Bond ETF TIP, Schwab U.S. TIPS ETF SCHP, Vanguard Short-Term Inflation-Protected Securities ETF VTIP and iShares 0-5 Year TIPS Bond ETF STIP.
This ETF is the most-popular choice in the TIPS space with AUM of $28.62 billion and an average three-month trading volume of 2.6 million shares. It tracks the Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L). It charges 19 bps in fees per year (read: Inflation Zooms to 13-Year High: 5 Solid TIPS ETF Picks).
This fund tracks the Bloomberg Barclays US Treasury Inflation-Linked Bond Index (Series-L). SCHP is among the cheapest options in the TIPS space, charging just 5 bps in annual fees. It has AUM to $17.76 billion and trades in a solid three-month average volume of about 2.1 million shares.
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SPDR Gold Shares (GLD): ETF Research Reports
iShares Gold Trust (IAU): ETF Research Reports
iShares TIPS Bond ETF (TIP): ETF Research Reports
iShares 05 Year TIPS Bond ETF (STIP): ETF Research Reports
Vanguard ShortTerm InflationProtected Securities ETF (VTIP): ETF Research Reports
Schwab U.S. TIPS ETF (SCHP): ETF Research Reports
GraniteShares Gold Trust (BAR): ETF Research Reports
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
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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.