The Federal Open Market Committee ended 2024 with a third straight overnight borrowing rate cut, and Chairman Jerome Powell suggested the pace of rate cuts would likely slow next year or more. Although the Fed has cut rates several times in recent months amid strong economic growth and falling inflation, there is great uncertainty about how those two indicators will change in the new year.
Inflation has proven particularly resilient, lingering above the Fed’s 2% target—the Fed recently raised its 2024 core inflation expectations to 2.8%. Complicating matters, the new Trump administration has advocated a number of policies that could be inflationary, including large-scale tariffs and mass deportations.
For investors looking to prepare their portfolios for the new year, this environment is becoming challenging to navigate. Investors taking a more cautious approach may want to position their investments to protect against inflation. Luckily, there are a number of exchange-traded funds (ETFs) that can be good bets in inflationary times. These funds are easily accessible, require little investor oversight, and explore many different asset classes and sources.
Wide possibilities of TIPS to combat inflation
iShares TIPS Bond ETF today
iShares TIPS Bond ETF
(As of 12/27/2024 5:30 PM ET)
- 52 week range
- $104.67
▼
$111.06
- Dividend yield
- 6.97%
- Assets under management
- $14.79 billion
Treasury Inflation-Protected Securities, or TIPS, are Treasury bonds indexed for inflation so that their face value will increase during periods of inflation. This makes TIPS one of the most popular government securities among investors concerned about inflation.
While it is certainly possible to hedge against inflation by purchasing TIPS directly, the iShares TIPS Bond ETF NYSEARCA: TIP goes one step further to make accessing these bonds even easier. The fund provides investors with access to a wide range of TIPS with many different terms for a modest fee of just 0.19%.
TIP is a low-risk fund because all of its assets are U.S. government-backed Treasury bonds and therefore also tend to provide modest returns. While there are several other TIPS-focused ETFs, investors often favor TIP because it has the largest asset base and the highest and most stable liquidity among all of these funds. However, it’s worth keeping in mind that TIP is not a guaranteed hedge against inflation—investors should also keep an eye on interest rates when investing in this fund.
Oil as a protective measure
US Oil Fund Today
US Oil Fund
(As of 12/27/2024 5:45 PM ET)
- 52 week range
- $65.48
▼
$83.41
- Dividend yield
- 0.00%
- Assets under management
- $1.03 billion
Commodities have historically been a strong hedge against inflation. A surprise 1% increase in inflation in the United States led to a 7% increase in real yields on commodities as a broad category, according to Goldman Sachs.
Among commodities, oil may be a particularly advantageous hedge against inflation risk because energy products tend to respond to both supply and demand shocks, while some other commodities tend to outperform in one or the other. these cases.
US Oil Fund NYSEARCA: USAGE This is a good balance of value and liquidity among oil ETFs. This fund has an expense ratio of 0.60% and assets under management of $1.1 billion as of December 26, 2024. Although it is not the largest or most liquid energy commodities fund.The US Natural Gas Fund is ahead on both fronts. NYSEARCA: UNGAnd it’s more affordable than some of its competitors (including UNG).
Investors in USO should be aware that oil price volatility often exposes holders of this fund to contango risk, which can be a problem for long-term fund investors.
Take your chance in the CLO space
Invesco Senior Loan ETF today
Invesco Senior Loan ETF
(As of 12/27/2024 5:45 PM ET)
- 52 week range
- $20.61
▼
US$21.25
- Dividend yield
- 5.13%
- Assets under management
- $9.29 billion
Collateralized loan obligations (CLOs) are securities that include tranches of high-risk debt, such as leveraged loans, issued to companies that are considered at risk of default for one reason or another. These securities are attractive to investors who are wary of inflation because they are often based on floating rate returns. However, the level of risk for an investor is much higher than many are willing to take on.
Invesco Senior Loan ETF NYSEARCA:BKLN One of the most popular ways to access the CLO space is through ETFs. By providing a broad portfolio of loans within a single ETF, BKLN can help reduce the risk associated with default. However, BKLN is not recommended for investors unfamiliar with this high-risk area.
Before you consider the Invesco Senior Loan ETF, you might want to hear this.
MarketBeat tracks Wall Street’s top-rated and best-performing analysts daily and the stocks they recommend to their clients. MarketBeat identified five stocks that top analysts are quietly whispering to their clients to buy now, before the broader market takes hold… and the Invesco Senior Loan ETF wasn’t on the list.
While the Invesco Senior Loan ETF currently has an analyst rating of Hold, the top-rated analysts think these five stocks are Outperform Buys.
View five stocks here
Just going into the stock market? These 10 common stocks can help new investors build long-term wealth without knowing options, technical or other advanced strategies.
Get this free report