ETFs to Help Fight Inflation

Signs of inflation have apparently returned to the U.S. economy after an absence of nearly 15 years.

Sam Stovall, chief investment strategist at Standard & Poor’s, cites the Consumer-Price Index (CPI) rose 1.2% during September and 4.7% on a year-over-year basis — the highest increase since June 1991 — driven primarily “by stubbornly high energy prices.” The labor department said yesterday that wholesale prices increased 1.9% last month.

As the Federal Reserve seeks to curb inflation by exercising changes in the Fed Funds rate, some mutual fund and stock investors may seek to move their assets into sectors that have historically performed well during inflationary periods. As a tactical play, exchange-traded funds (ETFs) focused on these sectors may provide some relief against rising consumer prices.

According to Stovall’s research, which examined eight periods of “inflation acceleration” between June 1972 and September 2005, energy, health care, materials and utilities recorded better average price gains and ‘frequencies’ of outperformance than did consumer discretionary, financial, industrials and information technology sectors. Gold and precious metals shares have also outperformed during such periods.