Inflation soared in 2022. At the same time, continued supply chain difficulties, labor shortages and rising commodity prices, fueled by the Russian-Ukrainian conflict, suggest that inflationary pressures may persist for the foreseeable future.
Although investing in certain stocks can be used to fight inflation, the current macroeconomic and geopolitical environment makes investing in individual stocks difficult. In this context, investing in an exchange-traded fund (ETF) might be more prudent.
An ETF is a basket of stocks, bonds and other securities that tracks an underlying benchmark index and trades on an exchange. Simply put, ETFs provide exposure to a variety of securities and diversify risk. In addition, there are several types of ETFs. Among the most popular are index ETFs and sector or sector ETFs.
So, instead of investing in individual stocks, let’s take a look at two ETFs that could help hedge your portfolio against inflation.
Invesco DB Commodity Index Tracking Fund (CBD)
Type of investment: Commodity futures
Market cap: $4.44 billion
Expense ratio: 0.87%
52 week range: $17.55 – $28.75
In times of inflation, commodities offer diversification to his portfolio. Invesco DB Commodity Index Tracking Fund is a convenient and cost-effective way (low expense ratio of 0.87%) to hedge against rising commodity prices.
The fund trades futures on the 14 most traded physical commodities, including Brent Crude, natural gas, gold, silver, aluminum, corn and others. DBC tracks the DBIQ Optimum Yield Diversified Commodity Index Excess Return.
Given rising commodity prices, DBC has outperformed the stock market as a whole and achieved an outstanding gain of over 51% in the past year.
Vanguard Mega Cap Growth ETF (MGK)
Investment Type: Large Cap Growth Stocks
Market cap: $11.78 billion
Expense ratio: 0.07%
52 week range: $206.57 – $266.44
Instead of direct exposure to commodities, investors with long-term investment horizons might consider the Vanguard Mega Cap Growth ETF. Historically, stocks have generated strong returns and are one of the best asset classes to beat inflation over the long term.
However, rather than concentrating your portfolio on a few stocks, Vanguard Mega Cap Growth ETF provides exposure to large cap growth stocks in the United States. In addition, its expense ratio is very low. The fund tracks the CRSP US Mega Cap Growth Index, and its top holdings include Apple, Microsoft, Amazon, Alphabet and Tesla.
Although the fund has reversed some of its gains over the past year, these large-cap stocks have strong growth potential and have a higher probability of beating the broader market over the long term.
These funds provide exposure to a variety of stocks, commodities and securities, adding diversification and reducing concentration risk in your portfolio. In addition, the expenditure rate remains low, which is positive. However, like all asset classes, risk is an integral part of investing in ETFs.
Discover new investment ideas with reliable data.
Read the full disclaimer and disclosure