ETF Strategies To Prepare For IMF's Inflation Warning

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Inflation levels are continuously under the scanner of market analysts. The latest warning from the International Monetary Fund (IMF) has grabbed investors’ attention. The reputed institution has warned of a risk of high inflationary levels being more persistent than transitory, resulting in central banks pulling back their easy monetary policies, per a CNBC article.

In this regard, IMF Chief Economist Gita Gopinath recently said that “more persistent supply disruptions and sharply rising housing prices are some of the factors that could lead to persistently high inflation,” as stated in a CNBC article. She has also said that “inflation is expected to remain elevated into 2022 in some emerging market and developing economies, related in part to continued food price pressures and currency depreciations,” according to the same article as mentioned above.

Notably, annual inflation rate in the United States accelerated to 5.4% in June 2021 from 5% in May, hitting a fresh high since August 2008, and well above forecasts of 4.9%. The latest uptick in inflation was the largest 12-month increase.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9% sequentially in June on a seasonally adjusted basis after rising 0.6% in May, the U.S. Bureau of Labor Statistics reported. This marked the largest one-month change since June 2008 when the index had risen 1.0%.

Also, the Fed held interest rates steady at a near-zero level in its latest meeting. Federal Reserve chief Jerome Powell has reportedly said that the central bank wants to see “substantial further progress” in terms of maximum employment and stability in price inflation before it would resort to lowering bond purchases, per a CNBC article. The Fed wants inflation to moderately exceed its 2% average inflation target.

Considering the current scenario, let’s take a look at some ETF areas that can offer good plays to combat rising inflation levels:

Gold ETFs to Hedge Inflation

The inflationary backdrop in the United States is favorable for gold as the metal is viewed as a hedge against inflation. Moreover, rising inflation often lowers the value of the concerned currency. If the greenback remains subdued, gold will gain some glitter back. Also, analysts at the Morgan Stanley expect the yellow metal to maintain prices above $1,700 an ounce through the second half of the year, as mentioned in a Bloomberg article.

Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares (GLD - Free Report), iShares Gold Trust (IAU - Free Report), SPDR Gold MiniShares Trust (GLDM - Free Report), and GraniteShares Gold Trust (BAR - Free Report) are some of the popular ETFs. Below we have discussed some of these in detail:


This is the largest and most popular ETF in the gold space, with AUM of $59.34 billion and average three-month trading volume of about 8.7 million shares. The fund reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of this ETF represented about 1/10th of an ounce of gold. The expense ratio is 0.40%.


The iShares Gold Trust offers exposure to the day-to-day movement of the price of gold bullion. It has AUM of $28.74 billion and trades in a solid three-month volume of 11 million shares, on average. At launch, each share of this ETF represented about 1/100th of an ounce of gold. The fund charges 25 basis points (bps) in sponsor fees.

TIPS ETFs to Consider

TIPS ETFs offer robust real returns during inflationary periods unlike its unprotected peers in the fixed-income world. It not only provides shelter from increasing prices but also protects income for the long term. While there are several options in the space to tap rising consumer prices, we have highlighted the four popular ETFs that could be compelling investments -- iShares TIPS Bond ETF (TIP - Free Report) , Schwab U.S. TIPS ETF (SCHP - Free Report) , Vanguard Short-Term Inflation-Protected Securities ETF (VTIP - Free Report) and iShares 0-5 Year TIPS Bond ETF (STIP - Free Report) .


This ETF is the most-popular choice in the TIPS space, with AUM of $30.97 billion and an average three-month trading volume of 3.6 million shares. It tracks the Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L). It charges 19 bps in fees per year.


This fund tracks the Bloomberg Barclays US Treasury Inflation-Linked Bond Index (Series-L). SCHP is among the cheapest options in the TIPS space, charging just 5 bps in annual fees. It has AUM to $19.39 billion and trades in a solid three-month average volume of about 2.4 million shares.

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