Red-hot inflation has been hitting headlines across the developed markets lately. In fact, the annual inflation rate in the United States accelerated to 7.5% in January 2022, marking a new high since June 1982, well above the market forecasts of 7.3%. Energy led to the jump while labor shortages and supply disruptions also caused a rise in inflation. Notably, inflation was 0.6% in January sequentially (read: U.S. Inflation at a 40-Year High: 4 Sector ETFs to Win).
So, no wonder, investors will look for ways to beat inflation and stay profitable. U.S. Treasury inflation-protected securities (TIPS) ETFs used to be a great tool to fight inflation. TIPS ETFs offer robust real returns during inflationary periods unlike its unprotected peers in the fixed-income world.
These securities pay an interest on an inflated-principal amount (principal rises with inflation) and when the securities mature, investors get either the inflation-adjusted principal or the original principal, whichever is greater. As a result, both principal amount and interest payments will keep on increasing with rising consumer prices.
However, with the Fed looking to hike rates faster in 2022, fixed-income investing does not look like a promising bet. Fed rate hikes will likely translate into rising yields, which carry an inverse relationship with bond prices.
As a result, it will be intriguing to look for ETF ways that deploy other investing avenues in order to beat inflation. ETF issuers have also been striving to bring about new products on this concept. We thus highlight three new ETFs that tend to gain from the current rise in inflation.
How Different Are These New ETFs From TIPS?
These funds bet on equity sectors that have the potential to benefit from rising inflation. These are rich in commodities too. Commodities are often viewed as a hedge against inflation. Cyclical sectors tend to follow the economic cycle of expansion and recession. With the economy gaining momentum and inflation rising, these sectors are likely to fare well. Also, owning real estate during times of inflation is a good idea because the purchase is a “one-time outlay” for the investor, does not incur recurring costs and involves resale value.
New ETFs in Focus
Harbor All-Weather Inflation Focus ETF HGER
The fund hit the market on Feb 9, 2022. The ETF HGER targets liquid and inflation sensitive commodities, accounts for the multiple forms of inflation and addresses the impact of futures roll yields. HGER is managed by Quantix Commodities LP, a sought-after player in the development and delivery of advanced commodity investment strategies.
The Quantix Inflation Index (“QII”) looks to offer superior inflation protection and outperformance to traditional commodity indices. QII consists of commodity futures, which are distinctive in their relationship to inflation and generally viewed as having the highest positive correlation to inflation of all the major asset classes, per the issuer. HGER charges 68 bps in fees.
Amplify Inflation Fighter ETF IWIN
IWIN is an actively managed ETF, investing in asset classes that look to benefit, either directly or indirectly, from inflation. The ETF hit the market on Feb 2, 2022.
The portfolio includes an active mix of asset miners (21.29%), commodities (20.33%), land development (19.93%), homebuilders (15.97%), commodity REITs (12.05%) and real estate technology (10.43%). Among the commodities, bitcoin gets the major share (29.89%), followed by gold (24.87%), broad-based (20%), corn (15.1%) and copper (10.14%). The expense ratio of IWIN is 0.85%.
AXS Astoria Inflation Sensitive ETF PPI
This ETF is active and does not track a benchmark. The ETF was launched on Dec 30, 2021. PPI invests in securities across multiple assets classes that have the potential to benefit from increases in the rate of rising costs of goods and services. PPI charges 71 bps in fees.
The fund bets on companies that are likely to gain from rising inflation. These include financial services companies, consumer discretionary companies (such as homebuilders and household durables), companies producing industrial machinery, metals and steel, and companies engaged in the exploration, production, transportation and mining of commodity assets (such as oil, gas, coal, agriculture, minerals and other real assets, including the passive ownership of royalties or production streams of such assets), per the issuer.
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AXS Astoria Inflation Sensitive ETF (PPI): ETF Research Reports
Amplify Inflation Fighter ETF (IWIN): ETF Research Reports
Harbor AllWeather Inflation Focus ETF (HGER): ETF Research Reports
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Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
