An ETF Idea For Inflation, And TIPS Aren't Involved

When investors think of asset classes used for inflation protection, one of the primary destinations are Treasury Inflation Protection Securities (TIPS).

Indeed, data suggest investors have been putting money to work with TIPS and the relevant exchange-traded funds amid rising inflation data points, but there are some credible equity-based ideas to help investors fight inflation.

Getting Into Inflation Without TIPS

The SPDR S&P Global Natural Resources ETF GNR is one equity-based idea that is also a credible inflation fighter. GNR, which tracks the S&P Global Natural Resources Index, debuted in September 2010 and has nearly $1 billion in assets under management. Data suggest GNR's underlying index has performed well during periods of rising inflation.

“Over the 14–year period ending Feb. 28, 2017, the S&P Global Natural Resources Index, which is designed to provide market participants with an equity-based approach to natural resource investments through its three commodity-related sectors (agribusiness, energy, and metals & mining), has outperformed the S&P Global BMI by a monthly average of 36 bps in high-inflation months,” said S&P Dow Jones Indices in a recent note.

Profiling GNR

GNR holds 106 stocks with over 93 percent, on a combined basis, hailing from the materials and energy sectors. While the materials sector has been a decent performer this year, GNR's energy exposure is holding the ETF back. With energy being the worst-performing sector in the S&P 500 year-to-date, GNR is up a market-lagging 2.8 percent.

Five of GNR's top 10 holdings are major integrated oil stocks, including Exxon Mobil Corporation XOM, Total SA (ADR) TOT and BP Plc (ADR) BP. As a reminder, GNR is a global ETF and U.S. stocks account for less than a third of the ETF's roster. Overall, 24 countries, including some emerging markets, are represented in GNR.

Not surprisingly, volatility is an issue with GNR. Over past three years, GNR's annualized volatility is 19.5 percent. Not only is that well above the S&P 500, which is not surprising, but it is also above the broader materials sector. In GNR's defense, the ETF has been less volatile than the broader energy sector. Over those three years, GNR is down 10.5 percent while the S&P 500 is higher by nearly 35 percent.