Persistent inflation is vexing economists that previously labeled higher consumer and producer prices “transitory.” That ominous scenario is also frustrating investors because some assets with inflation-fighting reputations aren’t delivering for investors in 2022.
In other words, selecting a specific asset based on inflation-beating potential isn’t much, if any, easier than choosing individual stocks. Fortunately, some exchange traded funds improve upon that scenario for investors, including the VanEck Inflation Allocation ETF (RAAX).
RAAX, which is nearly four and a half years old, is a potentially compelling inflation-beating idea for investors because it’s not constrained in terms of the asset classes it provides exposure to. Using an ETF of ETFs strategy, RAAX provides exposure to an array of assets, including stocks, gold, broader commodities strategies, and real estate investment trusts (REITs), among others.
“Return expectations for both stocks and bonds, and the traditional role they play in a portfolio, may not continue going forward as inflation continues to linger,” noted David Schassler, VanEck head of quantitative investment solutions. “Allocating to real assets is one way that investors can position their portfolios for a prolonged inflationary environment, as real assets have historically performed well in prior periods of high inflation. This blog is intended to answer frequently asked questions about real asset investing and more specifically.”
Overall, the $145.8 million RAAX holds 19 ETFs, eight of which are VanEck products. In terms of equity exposure, RAAX components include energy and natural resources funds of various forms and that’s a plus because those are among this year’s best-performing sectors.
“Real assets have historically performed well in periods of high inflation, including during the 1970s and the last bout of inflation in the mid-2000s. Across both these periods, real assets, in general, outperformed traditional asset classes such as stocks and bonds,” added Schassler.
RAAX also features significant allocations to several gold ETFs, including the VanEck Merk Gold Trust (OUNZ), and the largest real estate ETF. While gold and REITs aren’t generating positive returns this year, the yellow metal is sharply outpacing the S&P 500 and the Bloomberg U.S. Aggregate Bond Index. On a related note, RAAX is down just 2% year-to-date – far better than 19% lost by the S&P 500. That’s confirmation the ETF’s methodology is working.
“Exposures, liquidity, and costs are key criterion used to select the underlying ETFs. RAAX may use both external and internal, or those offered by VanEck, ETFs. Fees for underlying VanEck ETFs are waived and are not included in RAAX’s overall expense ratio,” concluded Schassler.
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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.