With the Securities and Exchange Commission set on money market reforms and inflation inching higher, investors may consider a multi-asset exchange traded fund strategy as an alternative to short-term Treasury bonds.
The IQ Real Return ETF (NYSEArca: CPI) provides a multi-asset, inflation hedging approach that could also do well as an alternative in advance of money market fund reforms and as a short-term fixed income hedged low volatility vehicle. CPI may include exposure to U.S. large-cap stocks, U.S. small-cap stocks, foreign equity, U.S. government debt, foreign currencies, real estate and commodities.
CPI can act as a cash or money market fund alternative, provide similar exposure to short-term Treasury and replace volatile Treasury inflation-protected securities.
Adam Patti, Chief Executive Officer at IndexIQ, argued that a multi-asset approach is a better way to hedge inflation than Treasury inflation-protected securities since TIPs are subject to rate risks ahead, with many observers expecting the Federal Reserve to raise interest rates as soon as December in response to improving U.S. economic conditions.
“TIPs has been the main solution in an inflationary environment but the problem is in a laddered portfolio, there are additional risks during rising interest rates,” Patti told ETF Trends in a call.
In a recent study going back 100 years to best determine inflation in a low volatile way, researchers found a multi-asset approach has been the most effective. Patti argued that since different asset classes are affected in various ways, a multi-asset investment may be the best approach.