7 Best ETFs for Inflation

Inflation ETFs offer an alternative to typical stocks.

Inflation fears were already elevated as we entered 2022, but things have only gotten worse lately after the Russian invasion of Ukraine, which has resulted in cascading financial sanctions and energy supply-chain disruptions. Considering January’s rate of consumer price increases was the hottest since 1982, it’s basically a forgone conclusion that consumers and businesses alike are bound to be paying more for both raw materials and finished goods this year. If you have inflation on your mind right now and are looking for either a way to protect yourself or a tactical way to profit, here are a few exchange-traded funds to consider.

SPDR Gold Trust (ticker: GLD)

The most popular hard asset and inflation hedge on the planet, gold is very much in favor right now. The precious metal is often seen as a “store of value” when rising prices eat into margins and when uncertainty hits the stock market, so gold is seeing increased popularity in 2022. The SPDR Gold Trust is the most popular way to play this commodity, as it is directly tied to the performance of gold bullion prices rather than gold-mining stocks. A few other funds out there offer lower annual expenses, but with $62 billion in assets, it’s a more liquid and trusted way to play physical gold as an inflation hedge. GLD is up about 4% this year compared with a double-digit decline for most stocks.

iShares Silver Trust (SLV)

Another precious metal fund worth a look is this iShares product, benchmarked to physical silver. While silver trades for a fraction of gold prices, around $30 or so per ounce instead of about $1,900, it is more linked to industrial demand. Businesses use silver in everything from electronics to specialty chemicals, giving it a more utilitarian footprint than gold, which largely sees demand from investors for luxury goods like jewelry. As recent inflation fears have been sparked in part by a very healthy labor market and recovering demand in the wake of COVID-19, silver may be worth a look because it is more linked to Main Street than Wall Street.

United States 12 Month Oil Fund (USL)

Another very popular commodity is crude oil, which sees strong demand both from traders as well as industrial end users who are looking to hedge their input costs. It’s not particularly easy for small-time investors to participate in oil markets, but this exchange-traded product provides one of the simplest ways to do so. Instead of investing indirectly though oil stocks, such as Exxon Mobil Corp. (XOM), USL is benchmarked to a basket of West Texas Intermediate crude oil futures contracts that expire in each of the next 12 consecutive months. That doesn’t give you direct exposure to day-to-day movements of crude, given that the fund is tied to expectations of future prices, but it’s still a good vehicle for investing in oil itself. As proof, consider USL has risen more than 50% in the last year and roughly 20% year to date.

Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)

If you don’t want to pick individual commodities like gold or oil, this $6 billion Invesco ETF is one of the most popular ways to get diversified exposure to commodities. Right now, that includes aluminum, copper, soybeans and sugar as well as oil and precious metals. In addition to this broad access to various materials, PDBC also offers a simplified structure that avoids K-1 tax forms that many investors find to be quite troublesome. And considering PDBC is up 13% year to date, outperforming many individual commodities like gold, the benefits of diversification in this one-stop fund are clear.

Vanguard Real Estate ETF (VNQ)

Looking beyond raw materials and commodity futures, a popular way to capitalize on rising prices thanks to inflation is to carve out a position in real estate. Like gold or oil, it’s a physical asset that has tangible value — and is sensitive to any broad trend in rising prices. VNQ is one of the largest and most popular real estate funds out there, with roughly $48 billion in assets at present. Its portfolio currently contains a wide variety of different real estate operators, including industrial park and warehouse company Prologis Inc. (PLD), self-storage giant Public Storage (PSA) and cell-phone-tower company American Tower Corp. (AMT), along with more intuitive investments in housing and commercial real estate.

iShares TIPS Bond ETF (TIP)

For those who are unfamiliar, TIPS is an acronym for Treasury inflation-protected securities. These are a special class of bonds issued by the U.S. government but indexed to the Consumer Price Index with a structure that allows them to appreciate as prices rise. Right now, thanks to inflationary pressures, this bond ETF has a 12-month yield of about 4.4%, dwarfing that of many other bond funds. But it’s worth noting that only a year or two ago, TIP only had a 12-month yield of about 1.0%. Keep this in mind, because while this iShares fund is attractive in the current environment, it is not exactly designed for outperformance if and when inflation pressures abate.

iShares Core S&P 500 ETF (IVV)

It’s natural in uncertain times like these to try to pick a tactical bet that will pay off. But a lot of research has proven over the years that the best strategy for investors tends to be a patient buy-and-hold approach. That’s because over time, stocks almost always tend to go up significantly. Furthermore, inflationary pressures that we’ve seen are in part thanks to positive events, including a very tight labor market, strong consumer demand and other similarly encouraging trends. Yes, day-to-day volatility can be unnerving. But this iShares fund that offers exposure to the largest U.S. corporations should continue to be a good investment even amid inflationary pressures. As long as you’re patient, that is.

The seven best ETFs for inflation:

— SPDR Gold Trust (GLD)

— iShares Silver Trust (SLV)

— United States 12 Month Oil Fund (USL)

— Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)

— Vanguard Real Estate ETF (VNQ) iShares TIPS Bond ETF (TIP)

— iShares Core S&P 500 ETF (IVV)

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7 Best ETFs for Inflation originally appeared on usnews.com