Two ETF Types to Battle Inflation
January 5th 2011 at 6:00am by Tom Lydon
Inflation or deflation, that is the question. If it’s inflation, here are a few exchange traded funds (ETFs) that may help ease your pain.
Kevin Depew for Minyanville says there are some things you should know about our current economic climate, because we’re in confusing times:
- U.S. annual inflation sat around 2.4% as of the end of last year.
- The desire for credit has dramatically fallen. However, the climate of global credit deflation is still flooded with a near infinite line of available credit.
- As government budgets become too distended, more companies will go private in a bid for efficiency.
Mark Hulbert for MarketWatch opines that inflation will come out on top from the inflation and deflation tug-of-war, citing financial forecasts and recommendations from investment advisors of Hulbert Financial Digest. [5 Reasons Precious Metals ETFs May Stay Solid.]
If inflation shows its face, investments in these two areas could serve as effective hedges:
- Gold. SPDR Gold Shares (NYSEArca: GLD), iShares COMEX Gold (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) are the three ways to get your physical exposure. Gold and other commodities are popular inflation hedges because they effectively give investors the ability to “lock in” at a lower price.
- Shorting Government Bonds. Long-maturity government bonds will decline in value as long-term rates increase, hence, the recommendation for shorting the asset. ETFs like ProShares UltraShort 20+ Year (NYSEArca: TBT) and Direxion Daily 30-Year Treasury Bear 3x Shares (NYSEArca: TMV) can give you your fix.
For more information on inflation, visit our inflation category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.