{"id":7524,"date":"2023-05-11T20:46:54","date_gmt":"2023-05-12T00:46:54","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/this-once-popular-etf-used-to-hedge-against-inflation-is-now-out-of-favor-what-investors-are-doing-now\/"},"modified":"2023-05-11T20:46:55","modified_gmt":"2023-05-12T00:46:55","slug":"this-once-popular-etf-used-to-hedge-against-inflation-is-now-out-of-favor-what-investors-are-doing-now","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=7524","title":{"rendered":"This once popular ETF used to hedge against inflation is now out of favor. What investors are doing now."},"content":{"rendered":"
\n

Hello! This is markets reporter Isabel Wang bringing you this week\u2019s ETF Wrap. In this week\u2019s edition, we take a look at inflation-protected bond ETFs. They saw significant outflows in the past week as U.S. consumer prices showed signs of moderating in April, though inflation pressures continued to squeeze Americans\u2019 pocketbooks.\u00a0<\/p>\n

Please send tips, or feedback, to isabel.wang@marketwatch.com or to christine.idzelis@marketwatch.com. You can also follow me on Twitter at @Isabelxwang<\/a> and find Christine at @CIdzelis<\/a>.<\/p>\n

\n

Sign up\u00a0<\/strong>here<\/strong>\u00a0for our weekly ETF Wrap.<\/strong><\/p>\n

The iShares TIPS Bond ETF
\n TIP,
\n +0.22%<\/bg-quote>,<\/span>
\n which tracks an index of Treasury inflation-protected securities, or TIPS, has seen outflows of nearly $340 million over the past week. Outflows on Wednesday alone exceeded $100 million following the release of a widely followed inflation report, according to FactSet data.\u00a0<\/p>\n

The U.S. Consumer Price Index report Wednesday showed inflation cooled to the lowest annual rate in two years, but it still remained about more than double the prepandemic average and well above the Federal Reserve\u2019s 2% target rate.\u00a0<\/p>\n

CPI rose 0.4% in April from the previous month, much faster than the 0.1% increase recorded in March. Prices climbed 4.9% on a year-over-year basis, down from 5% in March. Excluding volatile food and energy categories, the core CPI rose 0.4% monthly and 5.5% from a year ago, both in line with expectations.<\/p>\n

Todd Rosenbluth, head of research at VettaFi, said the outflows indicate that investors are responding to inflationary data, and they continue to \u201cbe nervous about having exposure to TIPS products.\u201d\u00a0<\/p>\n

TIPS are a type of Treasury security issued by the U.S. government, which are indexed to inflation to protect investors from a decline in the purchasing power of their money. Unlike other Treasury securities where the principal is fixed, the principal value of a TIPS adjusts with movements in inflation. When it matures, investors get either the inflation-adjusted price or the original principal, whichever is greater.\u00a0<\/p>\n

\u201cInvestors have been racing into TIPS ETFs in 2021 in anticipation of higher inflation, and then they\u2019ve been paring back that exposure ever since,\u201d Rosenbluth told MarketWatch in a phone interview on Thursday.\u00a0<\/p>\n

\u201cThe CPI numbers that came out show that inflation is still here to stay in perhaps different ways than people had been expecting\u2026Now I think there are some mixed signals as to whether or not there are more hikes to occur,\u201d he said.\u00a0<\/p>\n

Market participants hope that the lower-than-expected inflation data may leave room for the central bank to refrain from raising interest rates further at its June meeting. They also placed a 42% chance that policy makers would begin to trim borrowing costs at their July 25-26 meeting, according to CME FedWatch Tool.\u00a0<\/p>\n

There is \u201ccertainly a risk\u201d for investors who pulled their money out of the inflation-linked bond ETFs to overestimate the disinflationary process and position for the price pressures to fall back to prepandemic levels, warned Tim Urbanowicz, head of research and investment strategy at Innovator ETFs.\u00a0<\/p>\n

\u201cThe risk to see additional hikes probably outweighs the probability that you\u2019re going to see cuts this year,\u201d said Urbanowicz.\u00a0<\/p>\n

See:<\/strong> \u2018The Fed is way late and they\u2019ve already screwed it up.\u2019 This stock strategist is banking on gold, silver and Treasurys to weather a recession.<\/p>\n

The divergence between the Fed and the financial markets has driven investors to move back to fixed-income ETFs, especially ultra short-term bond funds. Avoiding interest-rate volatility has replaced inflation protection to be at the forefront of investors\u2019 playbooks, said market strategists. <\/p>\n

The SPDR Bloomberg 1-3 Month T-bill ETF
\n BIL,
\n +0.07%<\/bg-quote>
\n has seen over $86 million of inflows in the week to Wednesday, while the inflows over the past three months totaled nearly $5.3 billion. The iShares 0-3 Month Treasury Bond ETF
\n SGOV,
\n +0.06%<\/bg-quote>
\n has recorded a total of $3.9 billion inflows over the same three-month period, according to FactSet data.\u00a0<\/p>\n

\u201cThere is a lot of gravitation towards yield products,\u201d said Urbanowicz. \u201cThe flows that we\u2019re seeing on the shorter end of the yield curve continue to be prominent. Also other yield enhancement strategies are becoming extremely popular\u2026as a way to really generate extra income.\u201d<\/p>\n

\u201cInflation was a fear for investors in prior years, and then sentiment has shifted towards interest-rate hikes and interest-rate sensitivity,\u201d said Rosenbluth. \u201cInvestors want to manage their interest-rate sensitivity, and in particular, still have a focus on Treasury ETFs given the debt-ceiling crisis, and given what\u2019s going on with inflation.\u201d\u00a0<\/p>\n

Another example is BondBloxx Bloomberg One Year Target Duration U.S. Treasury ETF
\n XONE,
\n +0.04%<\/bg-quote>,<\/span>
\n which made its debut in September 2022. The fund has attracted over $514 million of inflows in the past week, and is among the top five ETFs that gathered maximum capital in the week to Wednesday, per FactSet data.\u00a0<\/p>\n

\u201cIt\u2019s rare to see an ETF that new get that level of demand,\u201d said Rosenbluth.\u00a0<\/p>\n

As usual, here\u2019s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.<\/p>\n

The good\u2026<\/h2>\n\n\n\n\n\n\n\n\n
\n Top Performers<\/strong> <\/p>\n<\/td>\n\n %Performance<\/strong> <\/p>\n<\/td>\n<\/tr>\n
\n Sprott Uranium Miners ETF
\n URNM,
\n -3.18%<\/bg-quote>\n <\/td>\n		\n 9.3<\/p>\n<\/td>\n<\/tr>\n
\n ARK Innovation ETF
\n ARKK,
\n +0.18%<\/bg-quote>\n <\/td>\n		\n 8.5<\/p>\n<\/td>\n<\/tr>\n
\n Global X Cybersecurity ETF
\n BUG,
\n -0.57%<\/bg-quote>\n <\/td>\n		\n 8.3<\/p>\n<\/td>\n<\/tr>\n
\n VanEck Rare Earth\/Strategic Metals ETF
\n REMX,
\n +0.12%<\/bg-quote>\n <\/td>\n		\n 8.1<\/p>\n<\/td>\n<\/tr>\n
\n Global X Uranium ETF
\n URA,
\n -3.29%<\/bg-quote>\n <\/td>\n		\n 8.0<\/p>\n<\/td>\n<\/tr>\n
\n Source: FactSet data through Wednesday, May 10. Start date May 4. Excludes ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater. <\/p>\n<\/td>\n\n <\/td>\n<\/tr>\n<\/table>\n

\u2026and the bad<\/h2>\n

New ETFs<\/h2>\n
    \n
  • \n IndexIQ announced on Wednesday the launch of the IQ CBRE Real Assets ETF
    \n IQRA,
    \n -1.06%<\/bg-quote>,<\/span>
    \n an actively managed ETF across real estate and infrastructure equity securities, subadvised by CBRE Investment Management Listed Real Assets LLC.<\/p>\n<\/li>\n
  • \n PIMCO said Wednesday that it launched the PIMCO Commodity Strategy Active ETF, which invests in a range of commodity-linked instruments and seek out \u201cdiverse sources of excess returns\u201d by incorporating multifactor considerations such as storage costs of physical commodities and historic performance trends.<\/p>\n<\/li>\n
  • \n J.P. Morgan Asset Management on Thursday announced the launch of two new ETFs: JPMorgan BetaBuilders Emerging Markets Equity ETF
    \n BBEM,
    \n <\/bg-quote>
    \n and JPMorgan BetaBuilders U.S. TIPS 0-5 Year ETF
    \n BBIP,
    \n -0.16%<\/bg-quote>.<\/span>
    \n BBEM\u00a0seeks investment results that closely correspond to the performance of the Morningstar Emerging Markets Target Market Exposure Index SM, while BBIP tracks the performance of the ICE 0-5 Year U.S. Inflation-Linked Treasury Index.<\/p>\n<\/li>\n<\/ul>\n

    Weekly ETF reads<\/h2>\n<\/p><\/div>\n<\/div>\n