5 ETFs Benefiting From High Inflation

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Prices for almost everything, from raw materials to food prices to shipping costs, have surged at the fastest pace in nearly four decades. This is especially true as the consumer price index (“CPI”) jumped 6.8% year over year in November, the highest level since June 1982 when inflation hit 7.1%.

Investors could make some profits by investing in ETFs benefiting from rising inflation. These ETFs — Invesco DWA Basic Materials Momentum ETF (PYZ - Free Report), iShares U.S. Home Construction ETF (ITB - Free Report), SPDR S&P Regional Banking ETF (KRE - Free Report), Vanguard Energy ETF (VDE - Free Report), and Invesco DB Commodity Index Tracking Fund (DBC - Free Report) — from different corners of the space could be compelling choices for investors amid the growing inflation.

Behind the Inflation Numbers

The pandemic-related supply shortages and continued strength in consumer demand continued to push the prices higher. The so-called core inflation, which strips out volatile components such as food and energy prices, rose 4.9% year-over-year in November — the steepest increase since 1991.

Energy costs jumped a whopping 33.3% from the year-ago levels, with gasoline soaring nearly 58.1%. Food prices climbed 6.1%, while used car and truck prices — a major component of the inflation increase — are up 31%.

The trend is likely to continue in the coming months given surging demand and limited supply. There have been shortages on the supply side of the U.S. economy given lack of commodities, labor shortages and other inputs to produce the totality of all the goods and services demanded by other businesses and American consumers. Additionally, huge infrastructure and stimulus packages in the United States have also been viewed as a key contributing factor to inflation.

ETFs in Focus

Invesco DWA Basic Materials Momentum ETF

As prices for various types of materials have been on the rise, the material sector is witnessing solid growth. Invesco DWA Basic Materials Momentum ETF tracks the Dorsey Wright Basic Materials Technical Leaders Index, giving investors exposure to 48 stocks showing relative strength (momentum). Chemicals dominates the fund’s returns at 57.3% while metals & mining accounts for 30.8% of the portfolio.

Invesco DWA Basic Materials Momentum ETF has amassed $146.6 million in its asset base while charging 60 bps in fees and expenses. Volume is paltry as it exchanges nearly 11,000 shares in hand a day. Invesco DWA Basic Materials Momentum ETF has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

iShares U.S. Home Construction ETF

The housing market has been the hot segment buoyed by lower mortgage rates, skyrocketing demand and limited supplies. The thirst for home buying is rising even in the face of increasing housing prices, thus providing huge profits to homebuilders. iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index.

With AUM of $3 billion, iShares U.S. Home Construction ETF holds a basket of 46 stocks with a heavy concentration on the top two firms. The product charges 41 bps in annual fees and trades in a heavy volume of around 3 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

SPDR S&P Regional Banking ETF

The financial sector is one of the biggest beneficiaries of rising inflation and potentially rising interest rates. This is because rising rates mean high yields on loan and fixed income portfolios, which increase revenue margins for the financial institutions with those portfolios. While there are many options available in the sector, SPDR S&P Regional Banking ETF, which targets the banking corner, appears as a more exciting pick.

SPDR S&P Regional Banking ETF follows the S&P Regional Banks Select Industry Index, charging investors 35 basis points a year in fees. It is one of the largest and most-popular ETFs in the banking space with AUM of $4.8 billion and an average daily volume of 8.4 million shares. Holding 132 securities in its basket, SPDR S&P Regional Banking ETF carries a Zacks ETF Rank #3 with a High risk outlook.

Vanguard Energy ETF

Energy stocks should perform well in high inflation environments. Vanguard Energy ETF is one of the popular choices in the energy space having accumulated $6.1 billion in asset base. It provides exposure to a basket of 94 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index.

Vanguard Energy ETF sees a good volume of about 1.2 million shares and charges 10 bps in annual fees. VDE has a Zacks ETF Rank #2 with a High risk outlook.

Invesco DB Commodity Index Tracking Fund

Invesco DB Commodity Index Tracking Fund is used to satisfy the demand for inflation hedging instruments. It follows the DBIQ Optimum Yield Diversified Commodity Index Excess Return, composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world.

Invesco DB Commodity Index Tracking Fund has AUM of $2.6 billion and charges 87 bps in annual fees. The fund trades in an average daily volume of 3.8 million shares.

Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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