3 ETFs To Fight Inflation

The Consumer Price Index for June will be released on Tuesday, and the consensus forecast is for a 0.3 percent increase. 

This index is calculated monthly by the Bureau of Labor Statistics as an aggregate measure of price changes of goods and services consumed by urban households in the United States. 

The CPI is considered an important measure of inflation, as rising consumer prices can weigh on economic growth. The Federal Reserves’ quantitative easing measures and zero interest rate environment has also spotlighted inflation as a key measure of future policy changes. 

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If you are worried about the inflationary pressures eroding your future purchasing power, the following ETFs are designed to combat those pernicious effects:

The IQ Real Return ETF CPI seeks to provide a hedge against the effects of inflation by providing a “real return” above the current inflation rate as measured by the Consumer Price Index. CPI invests in an underlying basket of other exchange-traded funds that include low-duration bonds, stocks and REITs. 

The secondary goal of this portfolio is a low-volatility solution through its multi-asset construction, with intra-day liquidity and transparency. The current expense ratio of CPI is listed at 0.48 percent.

Because of the overweight nature to short-duration treasury bonds, CPI is most certainly a conservative way to navigate an inflationary environment.  This ETF has returned 2.48 percent over the last year.

Another method of fighting inflation is through treasury inflation-protected securities. 

The iShares TIPS Bond ETF TIP is a basket of treasury securities that adjust their coupon payments according to the Consumer Price Index. This creates a gradually rising stream of interest payments when the price of goods and services is increasing. 

TIP is the largest ETF in this space, with more than $13 billion in total assets. This fund has an effective duration of 7.64 years and a 30-day SEC yield of 3.75 percent.

The PIMCO Global Advantage Inflation-Linked Bond ETF ILB is a similar fund with a global slant. This ETF has exposure to U.S., European and emerging market inflation adjusting bonds. 

ILB has a lower effective duration of 6.68 years based on its current portfolio makeup that includes a significant allocation to Brazil, Italy and Germany. 

Despite relatively tepid inflationary statistics over the last several years, the specter of higher interest rates and rising consumer prices is a risk that these ETFs can help mitigate.