As inflationary pressure continues to push upward, one way to counteract the rise is through real asset ETFs like the FlexShares Real Assets Allocation Index Fund (ASET).
As opposed to holding multiple assets like precious metals or commodities like oil, ASET can give investors exposure to it all through one position. Additionally, volatility is minimized via ASET holding companies that represent real asset exposure versus the actual tangible assets themselves.
The timing is auspicious for investors looking to hedge inflation in the current market environment.
“With the threat of rising inflation in recent weeks – or perhaps more accurately, a lot of talk about rising inflation – it is recommended that investors allocate more to equities, gold, and real assets as a means of hedging inflationary risk,” an article in The Asset said.
“Inflation fears come in the wake of the massive fiscal and monetary stimulus programmes in the United States, Japan, and Europe, which are pumping liquidity into the financial markets,” the article said further. “In the US, 10-year US Treasury yield and mortgage rates are already climbing in anticipation of the US Federal Reserve raising interest rates and triggering a sharp rise in prices. Some analysts believe that while short-term fears are not warranted, there is cause for long-term concern.”
ASET seeks investment results that correspond generally to the price and yield performance of the Northern Trust Real Assets Allocation IndexSM. The underlying index measures the performance of an optimized allocation to the underlying funds that is intended to provide exposures to certain real assets and minimize the overall volatility of an investment in the underlying funds.
Reduced Volatility through Diversification
ASET’s largest holding never exceeds 2% of the ETF’s assets, which helps to reduce concentration risk.
The fund’s top five sector allocations include materials, industrials, real estate, utilities, and energy. These areas are all expected to outperform as inflationary pressure continues to weigh on the capital markets.
“When inflation rises from the average, as in a reflationary environment like we’re expecting, risk assets perform well, with US equities, oil, energy stocks, and real estate outperforming. Broadly, portfolios should reallocate from bonds to equities and commodities,” said Alex Wolf, head of investment strategy, Asia, at J.P. Morgan Private Bank.
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