Treasury inflation-protected securities (TIPS) are favored fixed income assets for investors looking to fight inflation, but there are some equity plays that help investors combat inflation as well.
Hard assets often perform well when inflationary pressures rise, a scenario that could benefit equity-based exchange traded funds such as the FlexShares Morningstar Global Upstream Natural Resource Index Fund (NYSEArca: GUNR).
GUNR provides exposure to the rising demand for natural resources and tracks global companies in the energy, metals and agriculture sectors, while maintaining a core exposure to the timberlands and water resources sectors. Investors and advisors who want exposure in the energy sector but are wary about further volatility can utilize a diversified natural resource ETF to capture a broad group of resource companies.
“The $4.1 billion GUNR, which attracted $1.7 billion in net new assets over the past year, tracks a market-cap-weighted benchmark made up of 30% exposure each to energy, agriculture and metals and 5% each to timber and water. U.S. companies cannot make up more than 40% of the index,” reports Ari Weinberg for the Wall Street Journal.
The SPDR S&P Global Natural Resources ETF (NYSEArca: GNR) is another idea for investors looking to access an inflation hedge via hard assets equities.
GNR provides exposure to industries in energy, materials or agriculture that help consumers access the world’s resources. Additionally, even though we are in an expansionary environment, there may be bumps along the way, and investors should have a game plan to hedge the potential volatility.
“The $945 million GNR, which gathered $219 million in net new assets over the past year and includes paper and packaging firms (categorized as ‘downstream” versus GUNR’s “upstream” focus), has returned 34.9% over the past year, but has a 10.9% loss over five years. Its expense ratio is 0.4%,” according to the WSJ.
The SPDR S&P North American Natural Resources ETF (NYSEArca: NANR), one of the most successful ETFs to launch in 2015, is another equity-based hard assets play to consider.
NANR tracks the S&P BMI North American Natural Resources Index, which is a subset of the S&P Global Large MidCap Commodity and Natural Resources Index, according to State Street Global Advisors (SSgA), the third-largest U.S. ETF issuer.
“NANR is designed to meet demand for natural resources equity exposure by providing access to companies in the energy, materials and agriculture industries. NANR provides investors with an approach that weights the sub-sectors of the portfolio 45 percent energy, 35 percent materials and 20 percent agriculture stocks,” according to a statement from SSgA.
NANR holds nearly 60 stocks and charges 0.35% per year.
CORRECTION: updated GNR’s performance over five years.