Traditionally, an inflationary scenario might compel investors to embrace Treasury inflation protection securities (TIPS) and other assets with a reputation for damping rising consumer prices.
This time around, advisors and investors may want to consider an equity-based approach with real assets. Enter the FlexShares Real Asset Allocation Index Fund (NasdaqGM: ASET).
ASET, which is an ETF of ETFs, leverages three other FlexShares funds to provide a broad sampling of inflation-fighting equities – a potential plus in the current environment.
“The April U.S. consumer price index was surprisingly strong but there are no implications for the timing of the Federal Reserve’s tapering of its monthly asset purchase or first rate hike. Still, the acceleration in inflation has rattled financial markets,” according to Moody’s Investors Service.
3 Ways to Play Rising Prices
ASET’s holdings are the FlexShares Global Quality Real Estate Index Fund (NYSEArca: GQRE), FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA), and the FlexShares Morningstar Global Upstream Natural Resource Index Fund (NYSEArca: GUNR).
Each ETF has its own inflation-fighting credentials. In the case of GQRE, real estate stocks can benefit from rising inflation because that scenario often results in landlords increasing rent. NFRA looks to benefit from government spending on infrastructure, which often provides more income than other asset classes. GUNR is heavily allocated to commodities producers – a market segment with a lengthy history of admirable performance against a rising inflation backdrop.
For investors considering ASET today, there are other perks because of each of the funds featured in the ETF can deliver upside whether or not inflation materializes. For example, GQRE and GUNR are particularly benefiting as economic reopening plays.
“April’s CPI doesn’t alter our view that some of the acceleration in inflation is transitory. The reopening of the economy is a onetime event and that is boosting a number of components of the CPI,” adds Moody’s. “For example, lodging away from home jumped 7.6% in April and car and truck rental prices were up 16.2%. Also, airfares were up 10.2% in April. Similarly, the CPI for admissions to sporting and other events was up 3.4% between March and April. Based on their shares of the headline CPI, they added 0.17 percentage point to the gain in April.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.