Are Inflation ETFs For You? (CPI, GRES)

By Douglas A. McIntyre Updated Apr 27, 4:32PM EDT · Published Oct 28, 12:48PM EDT

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Money Image This week marks the launch of two new exchange traded funds, both of which intend to offer investors a direct hedge against inflation. IndexIQ introduced the IQ CPI Inflation Hedged ETF (NYSE: CPI) and also introduced the IQ ARB Global Resources ETF (NYSE: GRES).

Investors generally need to seek investment returns that outpace inflation if they want to be up net-net throughout their lives. That being said, it will be interesting to see how these measure through time. In theory, these could offer Joe Public more hedging instruments for or against other investments used to beat the eroding factor of inflation down the road. One of these ETF products, the CPI trade, is very easy to factor in the moves. The other, the GRES trade, is likely to be more complex than what many retail investors may care about; and what many institutions may aim to achieve on their own.

The IQ CPI Inflation Hedged ETF seeks to replicate the performance of the IQ CPI Inflation Hedged Index with a real return above the Consumer Price Index, before fees and expenses of course.

The IQ ARB Global Resources ETF seeks hedge against inflation and a real return through exposure to a diversified portfolio of commodity-related equities that represent asset classes affected by changes in inflation, such as equities, fixed income, commodities, currencies, and real estate. This is meant to identify global companies that operate in eight commodity-specific market segments and whose equity securities trade in IQ CPI and IQ ARB Global Resources ETFs. This one has a broad diversification: livestock; precious metals; grains, food and fiber; energy; industrial metals; timber; water; and coal. It also includes short exposure to global equities as a partial equity market hedge.

Some ETFs are liquid and the demand is easy to see and the performance is easy to track. Other ETFs are somewhat glorified hedge funds or mutual funds. You’ll have to decide on your own which side of the coin to take.

JON C. OGG
OCTOBER 28, 2009

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.