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‘Real Return’ ETFs to Hedge Inflation


“Real Return” can now be targeted via ETFs, as CPI (IQ Real Return ETF, Expense Ratio 0.48%) has now been on the market approaching 4 years (debuted in October of 2009).

We venture to say that many institutional ETF managers are still unaware of the product’s existence judging by its $55.6 million in assets under management and average daily trading volume of 7,367 shares, but another fund sponsor WisdomTree, recently entered the Real Return space as well with RRF (WisdomTree Global Real Return Fund, Expense Ratio 0.60%).

RRF is considerably smaller than CPI, with only $4.5 million in AUM at the moment.

The goal of CPI, according to fund literature is “to provide a hedge against the U.S. inflation rate by providing a “real return” or a return above the rate of inflation, as represented by the Consumer Price Index, which is published by the Bureau of Labor Statistics and is a measure of the average change in prices over time of goods and services purchased by households.

Like many of its other ETF products, IndexIQ’s CPI uses other ETFs to generate its returns, and currently has positions that look like the following: SHV (iShares Barclays Short Treasury Bond, Expense Ratio 45.60%, BIL (SPDR Barclays Capital 1-3 Month T-Bill, Expense Ratio 0.13%), DGL (PowerShares Gold, Expense Ratio 0.79%), SPY (SPDR S&P 500, Expense Ratio 0.09%), and VNQ (Vanguard REIT, Expense Ratio 0.10%).

RRF on the other hand does not use ETFs in its investment methodology, but rather actual bonds, swaps, and long and short positions in futures, making it a bit more complex for the average advisor to examine from top to bottom from an exposure standpoint.

Like many niche ETFs, we would expect as CPI approaches its five year mark of live performance (October of 2014), that more institutions that are increasingly using ETFs and especially those that are devoting a slice of their portfolios currently to “Real Return” managers and instruments will take a close look at this fund. Just yesterday as a matter of fact CPI traded more than 100,000 shares, dwarfing its ADV. Year to date, the fund has pulled in $13 million in new assets.

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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