Institutions have been slowly building up their inflation hedges and the average investor can also shield themselves against the negative effects of inflation through exchange traded funds that track real assets.
Institutional-class investors, including multibillion-dollar pensions, endowments and foundaments, have been slowly and quietly hoarding real assets as an inflation hedge in response to the Federal Reserve’s tightening monetary stance, reports Jeff Benjamin for InvestmentNews.
According to Greewich Associates, 80% of institutional investment consultants pointed to inflation protection as a primary reason for holding real assets, along with 65% of instittuions that alraedy invest in the asset class. Institutional investors’ inflation bucket now represents about 10% of their overall investment portfolios.
“The longer-term attraction of real assets is definitely the inflation sensitivity,” Keith Black, managing director of curriculum and exams at the Chartered Alternative Investment Analyst Association, said in the article. “Another part of the attraction is that we’re talking about something that is real and that people can actually touch. After the financial crisis, people realized that the stocks and bonds they owned were just paper assets.”
Specifically, real assets include investments like real estate, timber, physical commodities, precious metals and master limited partnerships.
The average retail investor can diversify their portfolios with these assets through targeted exchange traded funds. For instance, the Vanguard REIT ETF (NYSEArca: VNQ) and iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR) track a broad range of real estate investment trusts. VNQ excludes mortgage REITs and non-real-estate specialty REITs while IYR covers all domestic REITs. [Sector Classification Change Could Boost REITs ETFs]
While there are no timber commodity ETFs available, investors interested in the wood market can gain exposure through ETFs that track global timber-related companies, such as the Guggenheim Timber ETF (NYSEArca: CUT) and iShares Global Timber & Forestry ETF (NYSEArca: WOOD).