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.
Hard assets often perform well when inflationary pressures rise, a scenario that could benefit equity-based exchange traded funds such as the SPDR S&P North American Natural Resources ETF (NYSEArca: NANR).
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. An equity-based strategy, such as NANR, has advantages over using commodities futures to buffer against inflation.
“The return profile of a futures-based commodity index can diverge significantly from an index based on spot prices, primarily due to the impacts of roll yield,” said SSgA in a recent note. “In the last 20 years, the Bloomberg Commodity Spot Index advanced more than 270%, while the Bloomberg Commodity Index declined 2%. In the past year through September 28th, the Bloomberg Commodity Spot Index advanced 5%, doubling the 2.5% gain of the Bloomberg Commodity Index.”
NANR holds 53 stocks, over 92% of which hail from the materials and energy sectors.
Another Idea
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.