3 Off-The-Shelf Inflation-Fighter ETFs

February 07, 2013


State Street’s RLY

Newcomer RLY from State Street offers a bolder approach.

A third of its exposure is in global natural resources, a play on demand-driven commodities via equities. RLY gets this exposure from a single ETF, the SPDR S&P Global Natural Resources ETF (NYSEArca: GNR).

I don’t have any problem with the concentration in this case or the fund-of-funds approach, which is also used by CPI.

In addition, RLY takes positions in broad commodity, metal and agricultural ETFs. REITS loom largely here too, while fixed income takes a backseat at only about 20 percent. RLY’s basket sounds much more volatile than staid CPI—and it is, as we’ll see below.

Despite its late-to-the-party status, the fund has attracted assets and liquidity on par with CPI, if not better, and has an annual fee of 70 basis points.

Here’s a chart of total returns for the three funds since the inception of newcomer RLY on April 25, 2012.


Real Returns


While this sample period is short, the striking difference in volatility between CPI and RLY seems likely to persist, judging from their portfolios.

CPI excels at capital preservation but needs a bit more juice to generate real returns over a rough 2 percent annual inflation rate. RLY has the opposite problem—plenty of upside and plenty of risk too.

In all, CPI and RLY provide viable and distinctly different options in a real-return ETF.

These ready-made products don’t work for me, but at minimum, they offer insight into inflation-fighting strategies.

At the time this article was written, the author held no positions in the securities mentioned. Contact Paul Britt at [email protected].


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