5 ETFs To Play As Inflation Cools Down To 5%

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Inflation in the United States cooled down further in March as the consumer price index rose 0.1% in the month, following a 0.4% increase in February. Annual inflation also dropped from 6% to 5%, the smallest annual gain since May 2021, and is now down by almost half from its peak of more than 9% in June last year.

This has put the spotlight on ETFs like SPDR Gold Trust ETF (GLD) , iShares U.S. Home Construction ETF (ITB), AdvisorShares Restaurant ETF (EATZ), iShares U.S. Transportation ETF (IYT) and iShares US Technology ETF (IYW) .


Behind the Inflation Numbers

The decrease in inflation for the ninth consecutive month was caused by a decline in gas prices though rising shelter costs and higher food prices continued to remain the cause of concern. Gas prices dropped 4.6% from the prior month on a seasonally adjusted basis and were down 17.4% annually.

Shelter costs, accounting for more than one-third of the index, rose 0.6% over the month and 8.2% over last year. Though the price of food at home declined a modest 0.3% from last month, the cost of eating out rose by 0.6% over the past month and 8.8% year over year. Transport services cost rose 1.4% from last month (read: Could Housing ETFs Spring Up in the Key Selling Season?).

Cooling of inflation has fueled optimism that the Federal Reserve’s monetary tightening is about to come to an end.

The so-called core inflation, which strips out volatile components such as food and energy prices, rose 0.4% from February following a 0.5% bump in the previous month. This pushed up the annual increase from 5.5% to 5.6%.

ETFs in Focus

SPDR Gold Trust ETF (GLD - Free Report)

The slowdown in inflation growth might put a pause on rate hikes that will provide some lift to the yellow metal. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion.

SPDR Gold Trust ETF tracks the price of gold bullion measured in U.S. dollars and kept in London under the custody of HSBC Bank USA. It is an ultra-popular gold ETF, with AUM of $60 billion and a heavy volume of about 7.6 million shares a day. SPDR Gold Trust ETF charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 4 ETF Areas to Benefit as Geopolitical Concerns Intensifying).

iShares U.S. Home Construction ETF (ITB - Free Report)

Homebuilder ETF will get a dual advantage from falling inflation and a higher shelter cost. Falling inflation will keep the mortgage rates low, making home ownership less expensive for first-time buyers, while higher shelter costs will provide homebuilders an edge to negotiate well.

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 an AUM of $1.6 billion, it holds a basket of 48 stocks with a heavy concentration on the top two firms. iShares U.S. Home Construction ETF charges 39 bps of annual fees and trades in a heavy volume of around 2.8 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #4 (Sell) with a High risk outlook.

AdvisorShares Restaurant ETF (EATZ - Free Report)

AdvisorShares Restaurant ETF is actively managed and the only fund investing exclusively in the restaurant and foodservice industry, including restaurants, bars, pubs, fast food, take-out facilities, food catering services and more. AdvisorShares Restaurant ETF holds 29 securities in its basket with a higher concentration on the top firm.

AdvisorShares Restaurant ETF gathered $2.5 million in its asset base. EATZ charges 99 bps as annual fees and trades in an average daily volume of 700 shares.

iShares U.S. Transportation ETF (IYT - Free Report)

Rising transportation service cost is good for the sector. iShares U.S. Transportation ETF tracks the S&P Transportation Select Industry FMC Capped Index, giving investors exposure to a small basket of 47 securities. From a sector perspective, air freight & logistics, and railroads take the largest share at 32.4% and 26.2%, respectively (read: 5 ETFs to Bet on From the Favorite Sectors for Q1 Earnings).

iShares U.S. Transportation ETF has accumulated $774.8 million in its asset base and sees a solid trading volume of around 188,000 shares a day. It charges 39 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

iShares US Technology ETF (IYW - Free Report)

The tech sector is a clear beneficiary of easing inflation and the prospect of tightening policies. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low. iShares Dow Jones US Technology ETF tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, giving investors exposure to 139 U.S. electronics, computer software and hardware, and informational technology companies.

iShares Dow Jones US Technology ETF has AUM of $10.4 billion and charges 39 bps in fees and expenses. Volume is good as it exchanges nearly 651,000 shares a day. IYW has a  Zacks ETF Rank #2 with a Medium risk outlook.

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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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