In This Digital World, Get Real With Inflation Using Real Assets

Inflation reached a three-decade high during the month of October, but the good news is there’s a plethora of ways to combat inflation, such as real assets.

Initial, more optimistic forecasts of inflation labeled it as transitory, but that narrative is starting to change. Talks of stagflation are entering the capital markets, and rates are expected to push higher in 2022.

“Our central forecast is for inflation to peak in advanced economies in early 2022 before easing to be largely in line with central bank targets later in the year,” said Andrew Zurawski, associate director of investments in Asia at leading global advisory Willis Towers Watson. “However, upside risks to inflation are much higher relative to the pre-Covid period. The most recent data suggests broader inflationary pressures to be higher than we anticipated earlier in the year.”

As the consumer price index (CPI) continues to rise, investors can pick up assets that rise with it. This includes real assets like commodities and other real assets.

“A key risk to equities is a growing expectation of higher-than-expected discounts rates over the medium term. Inflation-linked bonds offer inflation protection but they can generate loses if real yields increase from their current very low rates,” Zurawski said. “Our preference is to build exposure to a mix of real assets, both listed and unlisted, with a medium to long-term perspective.”

A Real Asset ETF to Consider

Investors can hold tangible assets like precious metals and real estate, but there’s an easier way. ETF investors can get exposure to a variety of assets in one fund via the FlexShares Real Assets Allocation Index Fund (ASET).

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.

As of November 11, the top three sector allocations include real estate, industrials, and utilities. Moreover, ASET takes a global approach by investing in countries outside of the United States as well, including Canada, the United Kingdom, and Japan.

“The FlexShares Real Assets Allocation Index Fund (ASET) is meant to provide comprehensive real asset exposure to real estate, infrastructure, and natural resources,” an ETF Database analysis says.

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