2 ETFs That Could Help Hedge Against Rising Inflation
Investing.com | Mar 23, 2022 16:59
Since the beginning of the year, Wall Street has kept a close eye on the annual inflation rate and the Federal Reserve's policy changes.
According to the US Bureau of Labor Statistics, in February, the Consumer Price Index stood at 7.9% YoY, the highest level for US CPI in four decades. Its latest report :
"Increases in the indexes for gasoline, shelter, and food were the largest contributors to the seasonally adjusted all items increase."
On Mar. 16, the Federal Reserve increased interest rates for the first time since 2018. Then, on Mar. 21, Fed Chair Powell expressed concern over red-hot inflation levels and indicated that the central bank would not hesitate to be more aggressive in raising rates.
Meanwhile, Goldman Sachs expects the Fed to increase rates by 50 basis points in its May and June meetings. While consumer prices go up, investors are looking for asset classes and stocks that can help combat rising inflation levels.
Today's article introduces two exchange-traded funds (ETFs) that could appeal to such readers.
h2 1. Amplify CWP Enhanced Dividend Income ETF /h2- Current Price: $37.53.
- 52-week range: $33.90 - $38.60
- Dividend yield: 4.83%
- Expense ratio: 0.55% per year
Seasoned investors typically include dividend stocks in long-term portfolios. According to from Fidelity, dividends have accounted for roughly "40% of overall stock market returns since 1930."
Regular income from shares becomes even more important for retail investors in inflationary periods. Our first fund, the Amplify CWP Enhanced Dividend Income ETF (NYSE:DIVO), is an actively managed fund whose primary objective is income. It invests in dividend-paying shares. Then, to enhance income levels on a tactical basis, the ETF employs a covered call strategy on several shares. The fund distributes income monthly.
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DIVO, which launched in December 2016, currently has 28 holdings. In terms of sub-sectors, we see information technology (18.0%), consumer discretionary (16.0%), financials (12.0%), industrials (12.0%), and healthcare (10.0%). Its leading 10 stocks account for about half of net assets of $1.14 billion.
Diversified healthcare and insurer heavyweight UnitedHealth (NYSE:UNH); oil major Chevron (NYSE:CVX); consumer goods manufacturer Procter & Gamble (NYSE:PG); fast food giant McDonald's (NYSE:MCD); and consumer tech behemoth Apple (NASDAQ:AAPL) lead the names on the roster.
In the past 12 months, DIVO returned about 9.7%, and hit a record high in January. However, several of its holdings have come under pressure since then, and the fund is down about 1.9%.
We like the blue-chip names in DIVO. And as regular readers of this column would know, we frequently provide examples of tactical covered call strategies.
A combination of dividend shares and a covered call strategy could help lower the volatility of holding stocks while boosting monthly income generated. However, the net result ultimately depends on the fund's active management. Interested readers might want to research DIVO further.
h2 2. Ecofin Global Water ESG Fund/h2- Current Price: $42.61
- 52-week range: $39.09-$51.15
- Dividend yield: 1.84%
- Expense ratio: 0.40% per year
- YTD Price Change: Down to 17.1%
March 22 is :
"Global water supplies are under pressure, but there are innovative companies aimed at helping to efficiently preserve, treat, and recycle water."
Our second fund, the Ecofin Global Water ESG Fund (NYSE:EBLU), could appeal to readers who wish to invest in a wide range of global water names. The fund started trading in February 2017.
EBLU, which has 42 holdings, tracks the Ecofin Global Water ESG Index. The top 10 holdings comprise close to 58% of net assets of $59.2 million.
In terms of sectors, pipes, pumps, and valves have the most significant slice in the portfolio with 35%. Next come utilities (35%), filtration, treatment, and testing (24%).
Ferguson (NYSE:FERG), which distributes plumbing and heating products; water and wastewater utility American Water Works (NYSE:AWK); resource management group Veolia Environment (OTC:VEOEY); Geberit (OTC:GBERY), which manufactures sanitary parts; and Ecolab (NYSE:ECL), which offers the technology and services for water treatment and hygiene are among the leading names in the fund.
In the past 12 months, the EBLU is up 3.3% and saw a record high in late December 2021. Since then, the ETF has lost about 15.5% of its value. Buy-and-hold investors could find value in EBLU around these levels.
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