ETF Chart of the Day: Inflation Protection

December 26th at 11:17am by Paul Weisbruch, Street One Financial

There has no doubt been much talk surrounding inflation in the U.S. not only heading into the elections but we expect concerns to carry over into the new-year given the lack of concrete answers regarding this country’s economic situation.

Thus, a fund that launched in late 2009 with the goal of providing a potential hedge against the U.S. inflation rate known as IndexIQ Real Return (NYSEArca: CPI) is an appropriate feature for today’s piece.

CPI attempts to achieve a real return (above the inflation rate as measured by the CPI – Consumer Price Index) and does so using an ETF “fund of funds” strategy. CPI provides exposure in one swoop to twelve different asset classes (broad commodities, gold, oil, U.S. treasury securities, Real Estate, currencies, equities outside of the U.S., as well as U.S. large and small cap equities) in attempts to combat inflation over time.

Since inception the ETF has risen 1.96% and we have seen institutional money managers using the fund as a substitute for cash holdings as well as a device to build an “inflation hedge” into global and or U.S. equity or ETF portfolios.

While only averaging about 9,500 shares traded on an average daily basis, top holdings currently appear as the following: SHV (iShares Barclays Short Treasury Bond Fund, 47.40%), BIL (iShares Barclays 1-3 Month T-Bill, 24.07%), SPY (SPDR S&P 500, 10.00%), TLT (iShares Barclays 20+ Year Treasury Bond, 9.80%), and DGL (PowerShares DB Gold, 8.69%).

If one looks at any of the underlying ETF holdings not only in terms of their average daily volumes traded but more specifically, the nature of the underlying indexes (U.S. Treasury securities, the S&P 500 Index, Gold, for instance), orderly executions that do not create price impact are attainable in CPI regardless of what the “trading volume” appears to be on a given day provided the usage of proper trading techniques and trading desks that specialize in ETF executions where necessary.

IndexIQ Real Return

inflation-etf

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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