Persistent Inflation Creates Opportunity in This Active ETF | ETF Trends

Heading into 2023, it was widely anticipated that inflation would be stubborn, and while the expectation is that the Federal Reserve will eventually pause rate hikes, persistent inflation creates opportunities for hedging strategies implemented by active exchange traded funds (ETFs).

“The economy is proving more resilient and inflation more stubborn than economists expected a few months ago, and as a result the Federal Reserve will keep interest rates high for longer, according to The Wall Street Journal’s latest survey of economists,” the Wall Street journal reported.

The survey results showed that economists expect average inflation to be at 3.53% (based on the consumer price index) by year’s end, which is close to half a percentage point higher than survey results from the start of the year. Given this, it makes sense for investors to continue adding inflation hedging strategies to their portfolios in order to counter rising prices.

While there are a plethora of ways to counter inflation, an easier way to getting hedging strategies is to simply have it baked into a fund. That’s inherent in the actively managed Avantis Inflation Focused Equity ETF (AVIE).

Low-Cost Active Management

The 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.

Additionally, active management 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 having 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. Top three holdings, as of April 13, include names like Exxon Mobil, Berkshire Hathaway, and United Health Group.

Based on a fund fact sheet, AVIE also has over 300 holdings. This helps to not only add diversification, but to also minimize concentration risk when the markets trend downward.

For more news, information, and analysis, visit the Core Strategies Channel.