ETF Spotlight: Inflation Protection

ETF Trends

ETF Spotlight on IQ Real Return ETF (CPI - News) , part of an ongoing series.

Assets : $28.6 million.

Objective : The IQ Real Return ETF tries to reflect the performance of the IQ Real Return Index, which tries to provide a hedge against U.S. inflation rate by generating “real return,” or a return above the inflation rate. [TIPS ETFs as an Inflation Hedge]

Holdings : Top holdings include: iShares Barclays Short Treasury Bond Fund ETF (SHV - News) 50.1%, SPDR Barclays Capital 1-3 Month T-Bill ETF (BIL - News) 20.3%, iShares Barclays 20 Year Treasury Bond Fund ETF (TLT - News) , 10.9%, SPDR S&P 500 ETF (SPY - News) 6.7% and Powershares DB Gold Fund ETF (DGL - News) 5.5%.

What You Should Know :

  • IndexIQ sponsors the fund.
  • CPI has an expense ratio of 0.48%.
  • The fund holds 16 securities.
  • “Our research shows that a combination of assets, each with varying levels of sensitivity to inflation, may be a more effective way to hedge inflation risk,” Salvatore Bruno and Ludwig Chincarini wrote in a white paper titled “A Multi-Asset Approach to Inflation Hedging.”
  • “We use a portfolio based approach to show that a core position in short-term Treasury bills or one-month CDs with satellite positions in longer term bonds, gold, oil and emerging market equities form the basis of a portfolio for an investor looking for a positive real return, while helping to minimize the downside risk with respect to inflation,” according to the white paper.
  • The ETF includes a core holding in short-term Treasuries, along with satellite holdings in long-term Treasuries, real estate, U.S. large-cap equity, U.S. small-cap equity, international equity, British pound, Japanese yen, euro, oil and gold.
  • Asset exposure through ETF holdings vary based on monthly rebalance.
  • CPI is down 0.8% over the past month, down 1.2% over the past three months and up 2.8% over the last year.

The Latest News :

  • U.S. consumer prices remained flat in April as cheap gas helped offset a rise in food, clothing and housing prices, reports Christopher S. Rugaber for the Seattle Times.
  • The Labor Department announced that the Consumer Price Index was unchanged in April after a 0.3% rise in March.
  • Excluding volatile food and gas, “core” prices increased 0.2% in April.
  • Over the last year, the CPI has increased 2.3%, the smallest gain in over a year.
  • The Federal Reserve’s inflation target is 2%.
  • “We see little in the way of … significant inflation pressures,” Dan Greenhaus, chief global strategist at BTIG, said in the article.

IQ Real Return ETF

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For past stories in this series, visit our ETF Spotlight category.

Max Chen contributed to this article.

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