Can inflation be added to the list of things that are certain other than death and taxes? In the case of inflation, investors can at least minimize its effects using exchange-traded funds that incorporate an inflation-hedging strategy via Treasury Inflation-Protected Securities (TIPS).
A Kitco News report alluded to inflation best, saying: “Consumer prices may be showing muted inflation pressures as the world continues to feels the effects of the COVID-19 pandemic but a major inflation threat is looming on the horizon according to one chief economist.”
“People continue to ask: ‘Where is the inflation,” said Thorsten Polleit, chief economist at Degussa. “But you just have to look at equity markets, real estate and bond prices. At the moment inflation is impacting asset markets. But the increase in the quantity of money that has been printed in the U.S. as well in the Euro area inflation will sooner or later also push up consumer prices.”
“It may take a while for inflation in asset markets to show up in consumer prices it will eventually happen,” he added.
ETF Options
An ETF to consider is the iShares TIPS Bond ETF (TIP). TIP seeks to track the investment results of Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L) which composed of inflation-protected U.S. Treasury bonds.
Another strong option is the IQ Real Return ETF (NYSEArca: CPI). CPI seeks investment results that correspond to the IQ Real Return Index–a “fund of funds” that invests its net assets in the investments incorporated within the underlying index.
Fixed-income investors using corporate bond ETFs are subject to duration risk tied to interest rates, but in an economic environment where inflation is also rising, an ETF like CPI would be of benefit. Building off that point, another ETF to consider is the Goldman Sachs Access Inflation Protected USD Bond ETF (GTIP).
GTIP seeks to provide investment results that closely correspond to the performance of the FTSE Goldman Sachs Treasury Inflation Protected USD Bond Index. The index is designed to track the performance of inflation-protected, fixed rate U.S. Treasury Securities denominated in U.S. dollars (“USD”) that meet certain screening criteria.
A last fund to consider is the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP). This ETF seeks to track the performance of the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index.
The index is a market-capitalization-weighted index that includes all inflation-protected public obligations issued by the U.S. Treasury with remaining maturities of less than 5 years. The manager attempts to replicate the target index by investing all, or substantially all, of its assets in the securities that make up the index, holding each security in approximately the same proportion as its weighting in the index.
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