Over the last several months, the inflation debate has evolved from whether there would be any at all to how high it will go and how long it will last. With the first part of the debate seemingly settled and the answers to the magnitude and duration questions pointing toward higher and persistent, the need for investors to reconsider their portfolio exposures has taken on even more importance. Historically, real assets, including gold, commodities, and natural resources equities, have acted as viable solutions to offset the detrimental impacts of inflation.
In the upcoming webcast, Inflation is Here. Time to Get Real with Real Assets, David Schassler, Portfolio Manager and Head of Quantitative Investment Solutions Group, VanEck, will discuss inflation and the role of real assets to hedge the potential risks in this cycle.
To help investors gain exposure to real assets, the VanEck Inflation Allocation ETF (RAAX) is an actively managed fund of funds that seeks to maximize long-term real returns. It invests in ETPs with exposure to real assets, such as real estate, commodities, natural resources, or infrastructure, and may hold up to 100% cash or equivalents.
Real assets have the potential to protect investors’ portfolios from the effects of rising inflation. Many market observers believed that we would not have high inflation and that any inflationary forces would be mild. As of May 31, 2021, the year-over-year inflation change was 5%, based on the Consumer Price Index.
Commodities and other real assets have significantly underperformed the stock market since the great financial crisis. Following the market bottom, in March 2009, the S&P 500 Index has returned a gain of 561% versus a loss of 15% for the Bloomberg Commodity Index. With higher inflation, real assets have finally awoken from their decade-plus hibernation, and most are leading the markets higher. The lost decade-plus in commodities has created a situation where, relative to stocks, the prices of commodities and natural resource equities may still be cheap and have a lot more room to run.
Gold has, so far, been left behind in the latest inflation-led rally, but that may be starting to change as inflation concerns rise.
Additionally, RAAX now has exposure to bitcoin. There was an initial investment of 2% into the Grayscale Bitcoin Trust. Digital assets may offer RAAX many of the same benefits as gold. Most notably, protection against inflation and currency debasement in addition to overall portfolio diversification.
Financial advisors interested in learning more about real assets can register for the Monday, June 28 webcast here.