A: Having inflation protection in a portfolio is incredibly important and there are cheaper ways to get that protection than TIPS. While there’s not one substitute for TIPS, there are other asset classes that do a good job of hedging against inflation that investors may want to consider. Within fixed income, floating-rate notes and bank loans that will reset as interest rates go higher are options. On the equity side, some of the natural resource companies, and particularly energy companies accessible through the iShares S&P Global Energy Sector Fund (NYSEArca: IXC), can do a very good job of hedging against inflation. And right now, those companies offer a fairly generous yield1. Finally, though I advocate it be a small part of a portfolio, gold can be an effective inflation hedge over the long term.
The author is long IXC.
Russ Koesterich, CFA, is the iShares Global Chief Investment Strategist and a regular contributor to theiShares Blog. You can find more of his posts here.
1. IXC Average Annual Total Returns as of 3/31/2013
