President-elect Donald Trump has backed a number of measures that could fuel inflationary pressures ahead. Consequently, investors should consider exchange traded fund investments that may hedge portfolios against rising prices.
During the campaign trail, Trump has called for trade protectionist measures, greater public spending and tax cuts, all of which could help support growth, along with rising inflation.
“The main implications of this election are likely to be higher inflation as a result of fiscal policies such as tax cuts and infrastructure spending,” Jonathan Platt, head of fixed income at Royal London Asset Management, told the Financial Times. “In the medium term this will raise US and global interest rates.”
For instance, during Trump’s victory speech, the president elect expects to make America’s infrastructure “second to none,” potentially adding $1 trillion in infrastructure spending to stimulate the economy, which could further stoke wage pressure and inflation.
“We have added U.S. break-even inflation exposure to the portfolio post the Trump win,” Andrew Harman, portfolio manager at First State Investments Ltd., told Bloomberg. “U.S. inflation pressures are expected to be an on-going theme.”
[related_stories]ETF investors who are wary of potential inflationary pressures ahead have a number of options to hedge against the risk. For instance, Treasury inflation protected securities and related ETFs, including the iShares TIPS Bond ETF (NYSEArca: TIP), Schwab U.S. TIPS (NYSEArca: SCHP) and SPDR Barclays TIPS ETF (NYSEArca: IPE), are indexed to inflation as a way to shield investors from the negative effects of inflation. The securities’ par value rises with inflation as measured by the Consumer Price Index while interest rate remains fixed.
However, rising inflation expectations have weighed on the bond market, with yields on benchmark 10-year Treasuries back up to 2.12%. Observers believe rising inflation would weigh on real yields, which diminishes the attractiveness of debt assets.
Consequently, investors may also turn to short or bearish Treasury plays to hedge against further weakness in the market. For example, the ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT) tries to reflect the -2x or -200% daily performance of the Barclays U.S. 20+ Year Treasury Bond Index.
Alternatives to TBT include the ProShares UltraPro Short 20+ Year Treasury (NYSEArca: TTT), which takes the -3x or -300% daily performance of the Barclays U.S. 20+ Year Treasury Bond Index. Additionally, the Direxion Daily 20-Year Treasury Bear 3X (NYSEArca: TMV) tracks the -3x or -300% daily performance of the NYSE 20 Year Plus Treasury Bond Index.
Gold has also acted as a traditional hedge against inflation. Popular bullion-backed plays include the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL).
A stronger gold bullion also lifts gold miners like the VanEck Vectors Gold Miners ETF (NYSEArca: GDX) and the VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ), the two largest gold miners ETFs. Additionally, more aggressive traders capitalized off the surge with the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT) and the Direxion Daily Junior Gold Miners Index Bull 3X Shares (NYSEArca: JNUG).
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