Positivism heading into 2023 centered on the Federal Reserve keeping inflation in check and eventually decelerating its pace of rate hikes. However, if inflation proves to be stubborn, investors can counter with an inflation-focused exchanged traded fund (ETF).
Other parts of the globe are already accepting the notion that inflation is here for an extended stay. Australia’s central bank, for example, is conceding that inflation could stay high for some time, per a Bloomberg report.
“There is a limit to how long inflation can stay above the target band,” said Reserve Bank of Australia governor Philip Lowe in a speech. “The longer it stays there, the greater the risk that inflation expectations adjust and the harder, and more costly, it will be to get inflation back to target.”
From commodities to high yield fixed income, there are a plethora of ways to counter inflation. That said, an easier way to get hedging strategies is to simply have them baked into a fund, which is inherent in the actively managed Avantis Inflation Focused Equity ETF (AVIE).
Cost-Efficient Active Management
The prime advantage of active management is the dynamism it adds to an investor’s portfolio. Rather than having to manage the hedging strategies themselves, investors or advisors can opt for a fund like AVIE that offers active management with the set-it-and-forget-it ease of a passively managed ETF.
Best of all, the active management strategy comes at a low cost: a 0.25% expense ratio. In times of high inflation, this cost-effectiveness is top of mind for investors as stubborn inflation looks to stick around for longer than anticipated.
Per AVIE’s product website, the fund managers opt for holdings that consist of “a diverse group of U.S. companies in market sectors and industry groups that historically have had or that portfolio managers expect to have long-term correlation with inflation.” This helps to reduce the need for multiple positions in various assets in order to stave off the effects of inflation in a portfolio.
Because the fund also looks for quality holdings that exhibit strong profitability characteristics, investors can also expect to see upside potential while still getting inflation hedging. The top three holdings, as of April 13, are Exxon Mobil, Berkshire Hathaway, and United Health Group.
As of April 30, AVIE is well diversified with over 350 holdings. This helps to not only add diversification, but to also mitigate concentration risk when the markets trend downward.
For more news, information, and analysis, visit the Core Strategies Channel.
