ETFs give advisers varied tools for fighting inflation

With inflation stubbornly hovering near a 40-year high, the asset management industry has been rolling out ETF strategies for hedging the risk and taking advantage of some of the realities that come with higher prices.

Fresh out of the box on Friday is the Amplify Inflation Fighter ETF (IWIN), an active strategy charging 85 basis points that is sub-advised by Toroso Investments.

Across six allocation buckets, the new fund seeks to attack inflation on two main fronts, said Mike Venuto, Toroso co-founder and chief investment officer.

“Inflation, to a real person, comes from the debasement of currency and goods going up in value,” Venuto said. “We offset the money-printing part with investments in things like real land, gold and Bitcoin, and we offset the cost of things going up with commodities like copper and corn, and commodity producers.”

The portfolio is 42% allocated to commodities and commodity producers, and 58% allocated to land and real estate, but not traditional real estate investment trusts.

It's too early to tell how the strategy will fare in the current inflationary environment, but what's clear is that when it comes to inflation fighters, financial advisers and their clients have choices.

Todd Rosenbluth, director of mutual fund and ETF research at CFRA, said IWIN joins three other ETFs with short histories, each of which confronts the inflation challenge from different angles.

The $155 million Fidelity Stocks for Inflation ETF (FCPI), which launched in November 2019, is the granddaddy of the group and has performed up to expectations. So far this year, the index-based ETF, which charges 29 basis points, is down 2.1% after gaining 34.2% in 2021 and 2.2% in 2020.

The S&P 500 Index is down 6% so far this year, after rising 28.8% last year and 18.2% in 2020.

FCPL, as the only index-based ETF in the group, is sector diversified and relies on a strategy of allocating to areas that outperformed in prior inflationary cycles. That means exposure to technology, healthcare, and consumer staples.

The next-oldest fund is the $867 million Horizon Kinetics Inflation Beneficiaries ETF (INFL), an actively managed fund launched in June 2021. The fund, which charges 85 basis points, is down just 1.06% so far this year.

According to Rosenbluth, INFL is an equity-only strategy that is “targeted toward companies that the active manager believes have room for growth, and it’s more targeted toward equities that they believe will benefit from inflationary environment.”

Investors in this fund will get plenty of exposure to energy companies, materials companies and companies with operating margin flexibility that enables them to adjust their prices in stride with inflation.

Then there's the $33.2 million AXS Astoria Inflation Sensitive ETF (PPI), which launched in late December, charges 71 basis points and is up more than 4% so far this year.

PPI, which is actively managed, stands out for having exposure to both stocks and bonds. It owns energy companies and materials-related investments, as well as ETFs offered by Vanguard and Charles Schwab that invest in Treasury inflation-protected securities.

“It’s clear inflation is here to stay and it will continue to impact portfolios, but how these ETFs attempt to combat and benefit from an inflationary environment will be different,” Rosenbluth said. “They give advisers different tools to work with, and this is another example of why it pays to look under the hood.”