WisdomTree, a leader in the fundamental ETF and currency fund spaces, has registered the Real Return Fund (RRF) with the SEC, the next step in bringing to market an ETF that is designed to protect investor capital against the ravages of inflation. According to the filing, the proposed fund would seek to “provide investors with total returns that exceed the rate of inflation over long-term investment horizons.” To achieve this goal, RRF will invest in a portfolio of inflation-linked securities, including TIPS, and other investment grade fixed income securities. RRF will also have targeted exposure to commodities and commodity strategies, including energy, precious metals, and agriculture. In order to gain commodity exposure, the fund may utilize a variety of options, including swaps and exchange-traded commodity products.
The Real Return Fund will be actively managed, with WisdomTree Asset Management serving as the adviser and Mellon Capital Management serving as subadviser. RRF will charge an expense ratio of 0.50%, a surprisingly low amount for an active ETF. Many actively-managed ETFs feature expense ratios above 1%, with some going as high as 1.5%
Although deflation is a more immediate concern, inflation is certainly on the minds of a lot of investors these days, as concerns about the long-term ramifications of the government’s stimulus plans linger. Just last week, IndexIQ launched the IQ Inflation Hedged ETF (CPI), a product with the ability to invest in a number of asset classes with the goal of delivering a return in excess of inflation. At present, CPI is tilted heavily to short-term Treasuries (along with some long-term notes, gold, and the Japanese Yen), but the fund has the flexibility to reconstitute its holdings on a monthly basis in response to changing economic conditions.
The iShares Barclays TIPS Bond Fund (TIP), one of the most popular options for investors looking to lock in a real return, has seen cash inflows of more than $7 billion so far in 2009, including nearly $850 million in September. State Street’s International Government Inflation-Protected Bond ETF (WIP) has also been a popular fund, drawing in more than $400 million on the year. Finally, PIMCO had made inflation-protected ETFs a central piece of its product line, launching two TIPS ETFs, including a long-term (LTPZ) and short-term fund (STPZ).
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Disclosure: No positions at time of writing.