Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

2 ETFs To Hedge Against Increasing Inflation Levels

By Investing.com (Tezcan Gecgil/Investing.com )ETFsJun 14, 2021 10:25
uk.investing.com/analysis/2-etfs-to-hedge-against-increasing-inflation-levels-200481097
2 ETFs To Hedge Against Increasing Inflation Levels
By Investing.com (Tezcan Gecgil/Investing.com )   |  Jun 14, 2021 10:25
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

In May, US consumer prices rose at their fastest level since 2008, i.e., the largest increase in over than a decade. The official inflation level, as measured by the Consumer Price Index (CPI), increased 5% year-over-year (YoY). according to the US Bureau of Labor Statistics:

“The index for all items less food and energy increased … 3.8 percent over the year.”

As the US economy recovers, fears of inflation are returning. For now, the Fed seems comfortable with these numbers as it believes the uptick in inflation is transitory. Nonetheless, analysts will still pay close attention to this week’s Federal Reserve monetary policy announcement. Investors wonder whether Fed’s loose monetary policies will soon end, and if the central bank will intervene by raising interest rates.

Research done by Schroders, based on market data since March, 1973, highlights:

“Bonds and equities … tend to respond negatively to rising inflation. For every 1% increase in the inflation rate (e.g. a rise from 2% to 3% over one year), US Treasuries and equities fell by 1.7% and 1.2% respectively. In contrast, gold and commodities … have historically rallied when the rate of inflation increased.” In addition, “US REITs (real estate investment trusts) came out on top” as a potential hedge against inflation.

Meanwhile, the US 10-year Treasury yield has fallen to 1.45, in part due to a decline in the price of copper. In other words, markets are actually debating whether the Street should worry about inflation or about a slowing of economic growth.

Therefore, today’s article introduces two exchange-traded funds (ETFs) that could be appropriate for readers who expect inflation levels to rise in the months ahead.

1. Vanguard Real Estate Index Fund ETF Shares

  • Current price: $105.08
  • 52-week range: $75.46 - $105.77
  • Dividend yield: 3.06%
  • Expense ratio: 0.12% per year

Our first fund, the Vanguard Real Estate Index Fund ETF Shares (NYSE:VNQ) invests in publicly-traded REITs. The National Association of Real Estate Investment Trusts (NAREIT) suggests:

“REITs provide natural protection against inflation. REIT dividends have outpaced inflation as measured by the Consumer Price Index in all but two of the last twenty years.”

VNQ Weekly
VNQ Weekly

VNQ, which tracks the MSCI US Investable Market Real Estate 25/50 Index, has 174 holdings. Since its inception in September, 2004, net assets have grown to $72.9 billion. In other words, it is one of the largest real estate ETFs.

The top three sectors of the fund include specialized REITs (37.7%), residential REITs (13.8%), industrial REITs (10.7%), retail REITs (10%), and health care REITs (8.%). Specialized REITs usually invest in telecommunications and data center spaces, which have seen increased growth in recent quarters.

The ten largest holdings constitute nearly 45% of that assets. In other words, the ETF is heavily weighted in those stocks whose performance might affect VNQ. The top five names are the Vanguard Real Estate II Index Fund (NASDAQ:VRTPX), American Tower (NYSE:AMT), Prologis (NYSE:PLD), Crown Castle International (NYSE:CCI) and Equinix (NASDAQ:EQIX).

VNQ returned 30% in the past 12 months and 23% year-to-date (YTD). On June 10, the fund hit an all-time high (ATH). As real estate price inflation stateside is showing no signs of easing, VNQ could offer a winning proposition. We like the sub-sectoral diversity and the dividend yield of the ETF. A potential decline toward $100, or even below, would improve the margin of safety for buy-and-hold investors.

2. iShares Gold Trust

  • Current Price: $35.76
  • 52-Week Range: $31.94 - $39.52
  • Expense Ratio: 0.25% per year

Those investors who regard gold as a hedge against inflation risk might want to buy an ETF, such as the iShares Gold Trust (NYSE:IAU). The fund gives exposure to physical gold by tracking daily price movements of the bullion.

IAU, which began trading in Jan. 21, 2005, uses the London Bullion Market Association (LBMA) gold price as a reference benchmark. The fund currently has a net asset value of $30.4 billion. As of June 11, IAU had 16,169,915.67 ounces (502.94 tonnes) of gold in the trust.

IAQ Weekly
IAQ Weekly

On May 24, 2021, the fund had a 1 for 2 reverse stock split which raised the share price and decreased the number of outstanding shares. Understandably, the total value of shares outstanding and the total value of a shareholder’s investment in the fund were not affected by this reverse split.

Although the fund is down more than 1.3% year-to-date, the return in the past 52 weeks is around 8.4%. For investors who expect gold to overtake the previous high seen in August 2020, IAU could be an alternative to investing in physical gold.

2 ETFs To Hedge Against Increasing Inflation Levels
 

Related Articles

2 ETFs To Hedge Against Increasing Inflation Levels

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Oc Masai
Oc Masai Jun 14, 2021 14:05
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks you ms tezcan
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email