Nine ETFs Offering Inflation Protection 14 comments
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A rising tide lifts all boats, and the current liquidity boom is boosting inflation-hedge vehicles of every stripe. The nine ETFs below are common forms of protection against inflation, and/or a crash in the U.S. dollar. Every ETF is above its 200-day moving average, and all but the TIP are above the 50-day MAVG as well.
Approaching 52-Week Highs
Gold and precious metals are within striking distance of their 52-week highs, as are inflation protected funds of either U.S. or international bonds. Commodities are all a long way from their highs of last summer, and the short-bond index is well below its highs last Fall.
Protection At a Cost
A basket of the securities below provide a good hedge against a devaluation in the U.S. dollar caused by rising inflation. This is a long-term bet, so I wouldn't be put off by the recent strength in these ETFs.
Symbol | Name | Price 8/12/09 | % Change | % from 200-day Moving Avg | % from 50-day MAVG | % from 52-week Low | % from 52-week High |
(GLD) | SPDR GOLD SHARES | 92.95 | 0.17% | 1.87% | 0.87% | 40.83% | -6.10% |
(DBP) | PWRSHS DB PRECIOUS METALS | 32.7399 | 0.43% | 2.60% | 1.98% | 36.53% | -7.72% |
(TIP) | iSHARES TREASURY INFLATION PROTECTED SECURITIES | 100.32 | -0.39% | 0.03% | -0.27% | 19.23% | -6.25% |
(WIP) | SPDR DB INTL GOVT INFLATION PROTECTED BONDS | 54.00 | 0.80% | 10.59% | 2.14% | 27.54% | -8.52% |
(TBT) | PROSHS INVERSE 20-YEAR U.S. TREASURY INDEX | 52.20 | 2.35% | 5.58% | 1.22% | 47.00% | -24.18% |
(USO) | U.S. OIL FUND ETF | 37.35 | 1.33% | 17.01% | 4.44% | 64.25% | -62.10% |
(DBC) | DB COMMODITY INDEX | 23.05 | 0.52% | 8.87% | 3.23% | 28.48% | -42.53% |
(IYM) | ISHARE DJ BASIC MATERIALS | 51.11 | 1.15% | 26.31% | 11.46% | 81.43% | -33.19% |
(UDN) | PWRSHS DB US DOLLAR BEARISH INDEX FUND | 27.22 | 0.44% | 5.08% | 0.73% | 12.99% | -7.32% |
(SPY) | S&P DEP RECEIPTS | 100.80 | 1.07% | 15.54% | 6.39% | 50.22% | -22.88% |
(QQQQ) | PowerShares Exchange-Traded Fund | 39.87 | 1.55% | 19.22% | 6.02% | 59.16% | -17.91% |
(DIA) | DIAMONDS TRUST SER 1 | 93.768 | 1.28% | 14.63% | 6.83% | 44.75% | -20.54% |
Disclosure: Long GLD, TIP, SPY
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Jockum: Every form of inflation hedge has side effects, and some protect against a decline in the dollar better than others (gold, WIP, UDN). That's why I think a basket makes a the most sense.
I especially like oil, commodities, and basic materials as a way to play global reflation. These have some equity-like features that the fixed-income vehicles lack.
Good point about TBT.
Thanks,
Rob
On Aug 13 08:57 AM jockum wrote:
> note that precious metals include inflation in housing as well. TBT
> does not include this factor.
Dividend paying stocks have done well during deflation and inflation and stocks that have been raising dividends for 5+ years are the best ones by a large amount (8.92% instead of 6.3% annual average over 80 years) so if your core portfolio is focused on stocks that have been raising dividends for 5 years or longer, you might be just fine as you are. Some of those stocks are commodity, oil, or basic materials stocks and that would cover you that ways also.
Overall - a good article that gave me food for thought. Thank you for the ideas.
Mbkelly75:
Thanks for the constructive comments. Let me try to address them briefly:
RSP might be better than SPY, as you suggest. My friend Dan Coker is an index expert, and he ALWAYS tells me to invest in equal-weighted indices. Is the RSP as cheap and liquid as the SPY? Maybe it depends on the trading frequency (SPY for trading, RSP for investing).
CEP sounds interesting. I'll have to look into it, especially since I've heard complaints about GLD's structure.
TIP is definitely dependent on the U.S. government. WIP is not denominated in US dollars, and hedges against dollar depreciation.
Dividend stocks are a good alternative IF the underlying firms have a payout ratio that is sustainable, and IF they have pricing power in an inflationary environment.
Very helpful comments--thanks.
Rob
On Aug 13 02:27 PM mbkelly75 wrote:
> CEP is balanced between both Gold and Silver and is MUCH more transparent
> than GLD. TIPs are dependent on the Government's view of what inflation
> is at - if you have trouble believing their figures - they might
> not be the best investment.
> Dividend paying stocks have done well during deflation and inflation
> and stocks that have been raising dividends for 5+ years are the
> best ones by a large amount (8.92% instead of 6.3% annual average
> over 80 years) so if your core portfolio is focused on stocks that
> have been raising dividends for 5 years or longer, you might be just
> fine as you are. Some of those stocks are commodity, oil, or basic
> materials stocks and that would cover you that ways also.
I think you mean CEF-
Central Fund of Canada Limited
Optionsgirl:
Thanks for the correction. I didn't check the ticker that MBKelly75 mentioned.
I took a quick look at the prospectus for CEF www.silverbulliontrust....
It doesn't mention anything about buying gold, so it is NOT "balanced between gold and silver''.
MBkelly75, please take note.
Thanks!
Rob
Robert - You went to the wrong website. The Silver Bullion Trust is run by the same people as GTU and CEF but is not yet on the NYSE. It is only on the TXE right now. GTU is a Gold Bullion Trust and CEF IS the one that stays balanced between Gold and Silver. As the prices for the two metals change - CEF gets out of balance - but they re-balance when needed. CEF's website:
www.centralfund.com/
mbkelly75:
Thanks!
I'm a bit confused. I went to the Central Fund of Canada website, and I clicked on the link for the Silver Bullion Trust, and I looked at its prospectus. That is the link I noted above.
The security you describe, however, is a mix of gold and silver. What is the proper ticker for Yahoo Finance or Google Finance? Is it CEF?
As for the fund itself, it DOES sound like an interesting fund if it rebalances between gold and silver, especially if they rebalance based on a fundamental historical ratio. (Assuming that mean reversion works in precious metals.)
Thanks again for your posts. It helps to clear this up.
Rob
They do re-balance when it goes to far one way or the other. I am not sure how they judge the timing though. When I first bought them - it was 60-40 and a few weeks later - it was 50-50 when I stopped by to look again.
Mean Reversion does work over time in these 2 metals. I used to make money by doing just that using historical ratios and trading from one to the other when they got out of balance by 10% or more. After moving from one to the other and back again - I always had more of both metals than I started with. It had nothing to do with the prices - I was just trading the ratios.
MBKelly75:
You're right--CEF gets the correct fund on Yahoo; the fund is gold and silver. It was the link on the firm's website that caused the confusion.
If you have used mean reversion profitably with gold and silver, I am interested. A 10% valuation disparity was your trigger--what was your timeframe?
Thanks much, and have a profitable day.
rob
I hope that is clear - grandkids are "helping" me. The time it took to make the complete cycle did not matter nor did the actual price of Gold or Silver make any difference. The swap was simply based on the ratio between the two. You could make a profitable swap even with the prices of both way down or way up - it was only the ratio between them that made a difference. It did not matter if you made 6 swaps in a year or none. The ratio trade ALWAYS helped you end up with more at the end than you started with. It is also useful if you are trying to figure out which one to buy - look at the ratio and it is easy to see. I have not done it for quite a while so I have no clue what the ratio is right now and would have to go out to someplace like Kimco to figure it out or just call them and ask.
CEF makes it easy on a portfolio BECAUSE they have them both balanced and re-balance when they think it is needed. I can have both in my stock market portfolio and do not have to worry about the ratios. They even pay an itty-bitty annual dividend instead of charging storage fees like eGold or eSilver does.
On Aug 14 01:44 PM Robert Martorana wrote:
>
> MBKelly75:
>
> You're right--CEF gets the correct fund on Yahoo; the fund is gold
> and silver. It was the link on the firm's website that caused the
> confusion.
>
> If you have used mean reversion profitably with gold and silver,
> I am interested. A 10% valuation disparity was your trigger--what
> was your timeframe?
>
> Thanks much, and have a profitable day.
> rob
MBKelly75:
I like this strategy, especially since it's unconstrained by time. It's the essence of value-based mean reversion. Of course if CEF does it automatically, all the better.
I'm just in precious metals for the inflation protection, and for the signal they offer about the US dollar. There are a lot of smart folks who are waiting for the dollar to crack, but no one can identify THE catalyst. So I'll just watch metals, commodities, currencies, and bonds, and see what the market tells me.
Right now I believe the 30-year US treasury no longer can be used to gauge interest rates, much less the risk-free rate. (Jim Grant calls long bonds, "return-free risk"-- I love it!)
I'll gladly defer to you when it comes to trading precious metals. That's part of what I enjoy at Seeking Alpha: connecting with specialists in different fields.
In any case, I have to go fetch dinner. Fortunately, they still take greenbacks.
Have a good one,
Rob
www.kitco.com/
Sorry about that. Have a good weekend. I am BBQing beef ribs on Sunday and am not going to worry about the market until Monday.