This article was originally published on ETFTrends.com.
Investors looking to protect portfolios against inflation often turn to Treasury Inflation Protection Securities (TIPS), but there are other ways to buffer a portfolio against rising consumer prices. Those opportunities include hard assets.
Hard assets often perform well when inflationary pressures rise, a scenario that could benefit equity-based exchange traded funds such as the SPDR S&P North American Natural Resources ETF (NANR).
NANR tracks the S&P BMI North American Natural Resources Index, which is a subset of the S&P Global Large MidCap Commodity and Natural Resources Index, according to State Street Global Advisors (SSgA), the third-largest U.S. ETF issuer. An equity-based strategy, such as NANR, has advantages over using commodities futures to buffer against inflation.
“The return profile of a futures-based commodity index can diverge significantly from an index based on spot prices, primarily due to the impacts of roll yield,” said SSgA in a recent note. “In the last 20 years, the Bloomberg Commodity Spot Index advanced more than 270%, while the Bloomberg Commodity Index declined 2%. In the past year through September 28th, the Bloomberg Commodity Spot Index advanced 5%, doubling the 2.5% gain of the Bloomberg Commodity Index.”
NANR holds 53 stocks, over 92% of which hail from the materials and energy sectors.
GNR provides exposure to industries in energy, materials or agriculture that help consumers access the world’s resources. Additionally, even though we are in an expansionary environment, there may be bumps along the way, and investors should have a game plan to hedge the potential volatility.
“Historically, shares of natural resources companies have performed well in inflationary environments because earnings are closely linked to the value of the underlying commodity produced by the firm. As such, when inflation erodes the value of the US dollar, the value of the underlying commodity and the firm’s shares both rise,” according to SSgA.
The $1.38 billion GNR holds 92 stocks, over 93% of which are materials and energy names.
For more information on the oil market, visit our energy category.
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