5 ETFs To Make The Most Of Red-Hot 40-Year High Inflation

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Inflation is red hot with no signs of cooling down. This is especially true as the consumer price index (“CPI”) jumped 8.5% year over year in March, marking the biggest year-over-year increase since December 1981.

Investors could make some profits by investing in ETFs benefiting from the rising inflation. These ETFs — SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report), Invesco Dynamic Food & Beverage ETF (PBJ - Free Report), iShares U.S. Transportation ETF (IYT - Free Report), Materials Select Sector SPDR (XLB - Free Report), and iShares U.S. Home Construction ETF (ITB - Free Report) — with exposure to different sectors could be compelling choices for investors amid growing inflation. These ETFs have a favorable Zacks ETF Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), suggesting their solid outperformance.

Behind the Inflation Numbers

Inflation soared at its fastest pace in more than 40 years last month, buoyed by supply constraints, robust consumer demand and disruptions to global food and energy markets worsened by Russia's war against Ukraine. Price increases were broad-based, with gasoline being a key contributor to the inflation number, soaring 48% year over year. Used car prices jumped 35%, bedroom furniture spiked 14.7%, and men's suits and coats increased 14.5%. Grocery prices rallied 10%, including 18% increases for both bacon and oranges.

The escalation of energy prices has led to higher transportation costs for the shipment of goods and components across the economy, which, in turn, has contributed to gains for transporters. Airline fares soared an average of nearly 24% in the past 12 months.

The trend is likely to continue in the coming months, given the surging demand and limited supply. There have been shortages on the supply side of the U.S. economy given the 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, consumer demand is increasing as the economy is recovering from the pandemic.

The so-called core inflation, which strips out volatile components such as food and energy prices, rose 6.5% year over year, marking the biggest increase since 1982.

ETFs in Focus

SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

SPDR S&P Oil & Gas Exploration & Production ETF provides exposure to 61 oil and gas exploration and production companies by tracking the S&P Oil & Gas Exploration & Production Select Industry Index.

SPDR S&P Oil & Gas Exploration & Production ETF has AUM of $5.6 billion and trades in an average daily volume of 10.2 million shares. The fund charges 35 bps in fees per year and has a Zacks ETF Rank #3 with a High risk outlook (read: 5 Best Sector ETFs of March).

Invesco Dynamic Food & Beverage ETF (PBJ)

Invesco Dynamic Food & Beverage ETF offers exposure to 31 stocks that are engaged in the manufacture, sale or distribution of food and beverage products, agricultural products and products related to the development of new food technologies by tracking the Dynamic Food & Beverage Intellidex Index.

With AUM of $195.3 million, Invesco Dynamic Food & Beverage ETF charges 63 bps in annual fees from investors and sees a light average daily volume of 97,000 shares. PBJ has a Zacks ETF Rank #3 with a Medium risk outlook.

iShares U.S. Transportation ETF (IYT)

iShares U.S. Transportation ETF tracks the S&P Transportation Select Industry FMC Capped Index, giving investors exposure to a small basket of 52 securities. Within the transportation sector, railroads, and air freight and logistics take the top two spots with 31.1% and 29.5% share, respectively, while trucking (21.6%) and airlines (16.1%) round off the next two.

iShares U.S. Transportation ETF has $1.2 billion in AUM and has a good trading volume of 253,000 shares a day. It charges 41 bps in fees per year and has a Zacks ETF Rank #2 with a High risk outlook (read: 5 ETFs to Bet on the Favorite Sectors of Q1 Earnings).

Materials Select Sector SPDR (XLB)

Materials Select Sector SPDR is the most popular material ETF that follows the Materials Select Sector Index. It manages about $7.9 billion in its asset base and trades in volumes as heavy as around 8.7 million shares. Materials Select Sector SPDR holds about 28 securities in its basket and charges 10 bps in fees per year from its investors.

In terms of industrial exposure, chemicals dominates the portfolio with a 66.1% share, while metals & mining, and containers & packaging round off the top three positions. The product has a Zacks ETF Rank #1 with a Medium risk outlook.

iShares U.S. Home Construction ETF (ITB)

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 $1.5 billion, iShares U.S. Home Construction ETF holds a basket of 47 stocks with heavy concentration on the top two firms. The product charges 41 bps in annual fees and trades in a heavy volume of around 4.7 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #2 with a High risk outlook.

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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