3 ETF Areas That Are Beneficiaries of Higher U.S. Inflation

Consumer prices in the United States rose 1.8% year over year in July 2019, up from 1.6% in June and above market expectations of 1.7%. Barring food and energy, core prices went up 2.2% in July, above the market consensus of 2.1%.

Sequentially, consumer prices climbed 0.3%, after a 0.1% gain in June, matching market forecasts. The three-month core inflation rate increased 2.8%, the maximum in eight years, suggesting that inflation scenario has improved in the United States and weak readings earlier in the year were due to fleeting factors.

Goldman Sachs estimated that tariffs have raised year-on-year core PCE inflation by 10-15 basis points so far and that the new duties will contribute another 20 basis points to the inflation reading, as quoted on Reuters.

Below we highlight a few areas and their related ETFs that gained from this inflation report.

Winners

F&B – Invesco Dynamic Food & Beverage ETF (PBJ

There was an increase in the index for food away from home in July, though at a weaker pace. Food away from home was 3.2% versus 3.1% in June. However, food at home rose at a slower pace (0.6% versus 0.9%).

This should bode well for the fund. The underlying index of the fund comprises stocks of 30 U.S. food and beverage companies. These are companies that are principally engaged in the manufacture and sale of food and beverage products, agricultural products and products related to the development of new food technologies. The fund added about 0.6% on Aug 13.

Medical Care Services – iShares U.S. Healthcare Providers ETF (IHF)

Medical care services also saw an inflation of 3.3% versus 2.8% in June.  This makes IHF a gainful investment. The underlying Dow Jones U.S. Select HealthCare Providers Index is a free-float adjusted market capitalization-weighted index. It measures the performance of the health care providers sub-sector of the U.S. equity market. It includes health maintenance organizations, hospitals, clinics, dentists, opticians, nursing homes rehabilitation & retirement centers (read: Healthcare ETFs in Focus on UnitedHealth's Q2 Earnings).

Real Estate– iShares U.S. Real Estate ETF (IYR)

Shelter costs increased 3.5% in July, the same as in June. Rents had risen by 0.3% for six consecutive months. Investors should note that the domestic economy is on decent footing with a tightening labor marker and higher consumer spending, thereby brightening the prospect of the real estate sector. This is because growth in the economy translates into greater demand for real estate, higher occupancy levels and higher rent growth. U.S. residential rent values accelerated for nine months in a row in 2019. The present low-rate environment is another positive factor for the fund (see: Here's Why So Many Real Estate ETFs Near 52-Week High).

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iShares U.S. Healthcare Providers ETF (IHF): ETF Research Reports
 
Invesco Dynamic Food & Beverage ETF (PBJ): ETF Research Reports
 
iShares U.S. Real Estate ETF (IYR): ETF Research Reports
 
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