IndexIQ, a US provider of index-based alternative investments, has released two ETFs offering protection against inflation.
The IQ CPI Inflation Hedged ETF replicates the respective index, which hedges against changes in the US inflation rate by providing a return above inflation, as measured by movements in the Consumer Price Index (CPI).
The IQ ARB Global Resources ETF is designed to resolve problems associated with overweighting the energy sector in broad-based commodity products. The fund also hedges against inflation and provides exposure to a diversified portfolio of commodity-related equities.
IndexIQ uses a rules-based method to construct the underlying indices. The IQ CPI Inflation Hedged index consists of securities representing asset classes affected by changes in inflation, including equities, fixed income, commodities, currencies, and real estate.
The IQ ARB Global Resources index uses momentum and valuation factors to select global companies that operate in eight commodity-specific markets, and whose equity securities trade in developed markets such as the US.
The eight markets comprise livestock, precious metals, grains, food and fibre, energy, industrial metals, timber, water and coal. The index also includes short exposure to global equities, offering an equity market hedge.
IndexIQ says the investment tools on offer in the market are generally insufficient in providing an effective hedge against the impact of inflation upon portfolios. It says Treasury Inflation Protected Securities (TIPS), which may be used to counter the impact of inflation, historically show certain limitations in delivering an effective inflation hedge, such as higher levels of volatility than CPI.
IndexIQ has previously released a hedge funds replication ETF, as well as a macro and emerging markets hedge fund replication ETF.
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