Investors looking to protect portfolios against inflation often turn to Treasury Inflation Protection Securities (TIPS), but there are other ways to buffer a portfolio against rising consumer prices. Those opportunities include hard assets.
The SPDR S&P Global Natural Resources ETF (NYSEArca: GNR) is an idea for investors looking to access an inflation hedge via hard asset 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
“Across the 11 GICS sectors, three of the top four segments with the highest sensitivity to breakeven inflation rates have business lines related to natural resources,” said Matthew Bartolini, head research for SPDR Americas, in a recent note.
Statistically speaking, inflation remains benign, but with central banks around the world debasing currencies and the Federal Reserve likely to keep rates near zero for an extended period, the desired result of inflation may not be far off.
“With respect to commodity-related areas, higher inflation may lead to higher commodity prices, while also coinciding with an uptick in demand for natural resources as a result of one of the catalysts of inflation being increased spending,” adds Bartolini. “That uptick in demand may further increase the underlying commodity prices, potentially generating higher profits for those natural resource companies, which may then translate into higher returns.”
There are other reasons to consider the $1.12 billion GNR as an inflation tool.
“Targeting the more specific segments of natural resource producers while also broadening the scope to include mid- and small-cap firms is likely to improve a portfolio’s sensitivity to inflation. Going further down the cap spectrum also leads to obtaining exposure to firms with potentially higher sensitivity than that of large-cap firms,” according to Bartolini.
The median market value of GNR’s 90 components is $14.06 billion, indicating it has ample exposure to mid-cap fare.
Additionally, GNR yields 3.86%. That makes it a superior yield option to TIPS, which often starve investors of yield in the name of inflation protection.
For more alternative investing ideas, visit our Alternatives Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.