Morningstar Launches Inflation Index

January 22nd at 1:35pm by Tom Lydon

Investment researcher Morningstar has launched a new index that would hold up against inflation.

According to a press release, the Morningstar US Real Asset Index will hold a portfolio of traditional assets used to hedge against inflation, including Treasury inflation protected securities 40%, real estate investment trusts 15% and commodity stocks 15% and futures 30%.

“Inflation erodes the value of financial assets,” Sanjay Arya, senior vice president of Morningstar Indexes, said in the press release.

Inflation translates to losses in a traditional investment portfolio as it would diminish the value of dollars spent. Consequently, investors are looking at ways to hedge against inflationary risks, like real assets that derive their value from an underlying physical asset. Additionally, TIPS assets hold up during inflationary periods as the securities are tied to the Consumer Price Index.

“Investors have been showing a great deal of interest in holding a variety of investments that keep pace with inflation and add portfolio diversification, and the investment industry is paying attention,” Arya added. “The Morningstar US Real Asset Index will allow investors to better benchmark their real return investments and gain a deeper understanding of the benefits of adding a broad spectrum of inflation-hedged assets to their portfolios.”

ETF investors may also take a look at the IQ Real Return ETF (NYSEArca: CPI) as a way to hedge against inflation down the road. The Real Return ETF generates a return above the rate of inflation, as represented by the Consumer Price Index. The fund’s largest holdings include the iShares Barclays Short Treasury Bond (NYSEArca: SHV) 42.6%, SPDR Barclays 1-3 Month Treasury Bill ETF (NYSEArca: BIL) 24.0% and SPDR S&P 500 (NYSEArca: SPY) 10.3%.

For more information on ETF indexing, visit our indexing 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.