3 ETFs to Buy as Inflation Hits a 30-Year High

While solid second-quarter corporate earnings reports helped the major stock indexes soar, the market has been volatile lately due to a resurgence of COVID-19 cases and an inflationary environment. At the Jackson Hole economic symposium, Federal Reserve Chair Jerome Powell reiterated that high inflation is ‘temporary.’

However, the inflation rate for the 12 months that ended July came in at 4.2%, the highest rate since the first Gulf War in 1991. Moreover, according to the Labor Department data, the consumer price index (CPI) rose 5.4% in July, representing the largest jump since August 2008. Also, the producer price inflation (PPI) rose 7.8% for the 12 months that ended July, higher than economists’ expectations. While high inflation poses a threat for some industries, several industries are less susceptible to the consequences and benefit from rising inflation.

Therefore, it could be wise to invest in quality ETFs Vanguard Real Estate Index Fund ETF Shares (VNQ), iShares TIPS Bond ETF (TIP), and Invesco DWA Basic Materials Momentum ETF (PYZ) that are less susceptible to the consequences of high inflation.

Vanguard Real Estate Index Fund ETF Shares (VNQ)

VNQ is an exchange-traded fund launched and managed by The Vanguard Group, Inc. It invests in companies operating across mortgage real estate investment trusts, diversified financials, and real estate sectors. In addition, the fund seeks to track the performance of the MSCI US Investable Market Real Estate 25/50 Index.

With $44.2 billion in AUM, VNQ’s top holding is the Vanguard Real Estate II Index Fund Institutional Plus Shares, which has an 11.54% weighting in the fund, followed by American Tower Corporation (AMT) at 7.23%, and Prologis, Inc. (PLD) at 5.45%. It has an expense ratio of 0.12%, lower than the category average of 0.41%.

VNQ pays an annual dividend of $3.18, which yields 2.95% on the prevailing price. The ETF’s average four-year dividend yield stands at 3.98%. VNQ has gained 30.8% over the past year and 28.6% over the past nine months.

VNQ’s POWR Ratings are consistent with its growth outlook. It has an overall grade of A, which equates to a Strong Buy rating in our proprietary ratings system. In addition, it has an A grade for the Buy & Hold and Trade components. Click here to get VNQ’s Peer grade.

VNQ is ranked #1 out of 30 ETFs in the A-rated Real Estate ETFs group.

iShares TIPS Bond ETF (TIP)

Managed by BlackRock Fund Advisors, TIP primarily invests in U.S. dollar-denominated, fixed-rate, investment-grade inflation-protected public obligations of the U.S. Treasury that have at least one year remaining to maturity. The fund seeks to replicate the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities Index's performance using a representative sampling technique.

The fund has $32.8 billion in AUM. Its top holdings include United States Treasury Notes 0.5%, with an 8.09% weighting, United States Treasury Notes 0.625% at 7.35%, and Government of the United States of America 0.125% with 6.36%. The fund’s 0.19% expense ratio is lower than the category average of 0.22%.

TIP pays $4 annually in dividends to its investors, which yields 3.08%. Its average four-year dividend yield stands at 1.99%. Over the past six months, the fund has gained 3.3%. In addition, it has gained 2.8% over the past nine months.

It’s no surprise that TIP has an overall grade of A, which equates to a Strong Buy rating in our proprietary ratings system. In addition, it has an A grade for Trade and Buy & Hold.

Click here to access TIP’s Peer grade as well. In addition, TIP is ranked #1 out of 16 ETFs in the B-rated Inflation-Protected Bond ETFs group.

Invesco DWA Basic Materials Momentum ETF (PYZ)

Launched and managed by Invesco Capital Management LLC, PYZ invests in companies operating across materials sectors. It seeks to track the Dorsey Wright Basic Materials Technical Leaders Index performance by using the full replication technique.

PYZ has $208.3 million in AUM. Its top holdings include Alcoa Corporation (AA) with a 4.36% weighting in the fund, Nucor Corporation (NUE) at 4.36%, and United States Steel Corporation (X) with 4.26%. The fund’s 0.60% expense ratio compares to the category average of 0.46%.

The fund pays an annual dividend of $0.44, which yields 0.48% at the prevailing share price. Its average four-year dividend yield stands at 1.12%. The fund has gained 60.7% over the past year and generated a 37.5% return over the past nine months.

PYZ’s strong fundamentals are reflected in its POWR Ratings. It has an overall grade of A, which equates to a Strong Buy rating in our proprietary rating system. It also has an A grade for Trade and Buy & Hold.

PYZ is ranked #20 out of 114 ETFs in the Commodity ETFs group. In addition to this, one can access PYZ’s Peer grade here.

VNQ shares were trading at $108.38 per share on Tuesday afternoon, up $0.31 (+0.29%). Year-to-date, VNQ has gained 29.27%, versus a 21.56% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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