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ETF Strategies to Keep Inflation in Check

As the Russia-Ukraine war further disrupts the global markets and further pushes up inflationary pressures, investors can turn to exchange traded fund strategies that could thrive in this type of environment.

Federal Reserve Chairman Jerome Powell warned that Russia’s invasion of Ukraine will likely add to inflationary pressures due to the country’s role as a major global commodities provider, the Wall Street Journal reports.

“We’re going to see upward pressure on inflation at least for a while,” Powell told the Senate Banking Committee on Thursday.

Furthermore, Powell warned that the war, escalating sanctions by the West, and other steps businesses are taking to cut ties with Russia could also contribute to a dip in financial risk-taking that would further reduce investments.

“I do think it’s going to be appropriate for us to proceed along the lines we had in mind before the Ukraine invasion happened,” Powell added. “In this very sensitive time at the moment, it’s important for us to be careful in the way we conduct policy simply because things are so uncertain and we don’t want to add to that uncertainty.”

Powell also underscored the recent spike in energy prices as a direct result of Russia’s invasion and sanctions. Consumers will soon bear the brunt of the rising energy prices at the gas pumps.

“There’s already a lot of upward inflation pressure and additional pressure does probably raise the risk that inflation expectations will start to react in a way that is negative for controlling inflation,” Powell said.

As investors consider ways to navigate a rising inflationary environment, there are a number of ETF strategies to choose from. For example, fixed income ETF investors who are interested in hedging their portfolios against inflationary pressures can turn to TIPS-related ETFs, such as the iShares TIPS Bond ETF (NYSEArca: TIP), the Vanguard Short-Term Inflation-Protected Securities ETF (NYSEArca: VTIP), the Schwab U.S. TIPS (NYSEArca: SCHP), and the SPDR Portfolio TIPS ETF (SPIP).

Broad commodities or real assets have also been a big hit among investors. For instance, the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) has been a popular broad commodities play that provides exposure across a range of real assets, including crude oil, base metals, and gold, among others.

Precious metals plays like the SPDR Gold Shares (NYSEArca: GLD), the iShares Gold Trust (IAU), and the Aberdeen Standard Gold ETF Trust (SGOL) have also been an easy way to safeguard wealth.

Additionally, there are now a number of specialized or alternative ETF strategies based on the inflation play, including the Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL), the IQ Real Return ETF (NYSEArca: CPI), the ProShares Inflation Expectations ETF (NYSEArca: RINF), the VanEck Inflation Allocation ETF (RAAX), the Amplify Inflation Fighter ETF (IWIN), and the AXS Astoria Inflation Sensitive ETF (PPI), among others.

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