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ETF Strategies to Play Hot inflation Data

U.S. inflation jumped in March, surpassing expectations primarily due to higher petrol and shelter costs, dashing hopes of a June interest rate cut by the Fed. The US consumer price index (CPI) rose by 0.4% sequentially, exceeding estimates from Wall Street.

Over the 12-month period ending in March, the CPI recorded a 3.5% year-over-year increase, marking the largest gain in six months since September 2023. This follows a 3.2% rise in February 2024.

Core prices, which exclude volatile food and energy costs, rose 3.8% compared to the previous year, maintaining the same year-over-year rise as observed in February.

Against this backdrop, below we highlight a few ETF investing strategies that can be gainful for investors.

Play Inflation-Fighting ETFs

In the past one year, Wall Street has seen launches of several inflation-fighting ETFs like Amplify Inflation Fighter ETF IWIN, AXS Astoria Inflation Sensitive ETF PPI, Fidelity Stocks For Inflation ETF FCPI, VanEck Inflation Allocation ETF RAAX and Horizon Kinetics Inflation Beneficiaries ETF (INFL). Some of these ETFs invest in asset classes that look to benefit, either directly or indirectly, from inflation while some invest directly or indirectly, in a mix of U.S. Treasury Inflation-Protected Securities and long options tied to the shape of the U.S. interest rate curve.

Play ETFs That Protect You From Higher Rates

In reflection of the sticky inflation data, the benchmark 10-year U.S. treasury yield jumped to 4.55% on Apr 10, 2024 from 4.33% recorded on Apr 1, 2024. The two-year U.S. treasury yield too jumped by 25 bps to 4.97% during this timeframe. Hot inflation data now pushed market’s rate cut expectations to September.


Against this scenario, ETFs that offer protection from higher rates should be in vogue. These ETFs include Simplify Interest Rate Hedge ETF PFIX, Global X Interest Rate Hedge ETF RATE and FolioBeyond Alternative Income And Interest Rate Hedge ETF RISR.

Short Gold?

Gold market witnessed some selling pressure on Apr 10, 2024 due to the release of hot inflation reading which means extended period of higher rates. As gold is a non-interest-bearing asset, the yellow metal is expected to underperform if rates remain higher for longer. The largest gold bullion ETF SPDR Gold Trust GLD was off 0.95% on Apr 10, while the fund has still gained about 1.7% past week.

Investors can tap inverse gold ETFs like ProShares UltraShort Gold GLL, DB Gold Double Short Exchange Traded Notes DZZ and MicroSectors Gold Miners -3X Inverse Leveraged ETNs (GDXD). These funds added 1.9%, 0.5% and 5.4% on Apr 10, 2024.

Time for Energy ETFs?

The energy sector, which includes oil and gas companies, has historically offered upbeat performance in a rising inflationary environment. Such firms beat inflation 74% of the time and delivered an annual real return of 12.9% per year on average, per a research report of Hartford Funds.

The revenues of energy stocks are tied to energy prices, a key component of inflation indices. This time also, rise in oil prices increased inflation globally. Crude oil is hovering around $85-level. Crude oil prices extended gains on escalation in Middle East tensions. And energy ETFs should emerge outperformers. iShares US Oil Equipment & Services ETF IEZ is up 10.5% past month.

Value ETFs to Gain Traction?

Given this edgy investing backdrop, investors can bet on large-cap value ETFs. After all, value investing requires buying securities that appear underpriced. Also, value stocks perform better than growth stocks in a rising rate environment. SPDR Portfolio S&P 500 Value ETF SPYV, Vanguard Mega Cap Value ETF MGV, Alps OShares U.S. Quality Dividend ETF OUSA and Siren DIVCON Leaders Dividend ETF LEAD are some of the top-ranked value ETFs that may gain if inflation continues to stay hot.

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SPDR Gold Shares (GLD): ETF Research Reports

Global X Interest Rate Hedge ETF (RATE): ETF Research Reports

iShares U.S. Oil Equipment & Services ETF (IEZ): ETF Research Reports

DB Gold Double Short ETN (DZZ): ETF Research Reports

ProShares UltraShort Gold (GLL): ETF Research Reports

ALPS (OUSA): ETF Research Reports

SPDR Portfolio S&P 500 Value ETF (SPYV): ETF Research Reports

Vanguard Mega Cap Value ETF (MGV): ETF Research Reports

VanEck Inflation Allocation ETF (RAAX): ETF Research Reports

Fidelity Stocks for Inflation ETF (FCPI): ETF Research Reports

Simplify Interest Rate Hedge ETF (PFIX): ETF Research Reports

FolioBeyond Alternative Income and Interest Rate Hedge ETF (RISR): ETF Research Reports

AXS Astoria Inflation Sensitive ETF (PPI): ETF Research Reports

Amplify Inflation Fighter ETF (IWIN): ETF Research Reports

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Zacks Investment Research