Another Inflation Fighting ETF On Tap

by on July 22, 2011 | ETFs Mentioned:

First Trust, the firm behind the recently-launched Cloud Computing Index Fund (SKYY) has filed details on an ETF focused on another popular theme: inflation. A recent SEC filing detailed the First Trust Inflation Managed Fund, a product that would maintain a primary investment objective of “long-term capital appreciation” and secondary objective of current income. The proposed ETF would be actively managed, and according to the filing would invest in “common stocks of companies in the energy and materials sectors and in ETFs and closed-end funds that hold commodities, such as gold and silver, inflation-indexed government bonds and floating rate securities.”

The filing also mentioned that the fund could use derivative instruments to hedge against interest rate increases. That flexibility could be appealing to investors concerned about the adverse impact of rising rates on inflation-protected bonds, an asset class that many have embraced as a primary defense against inflation and one the seemingly would be a component of the First Trust fund as well.

Inflation ETFs In Focus

There are dozens of ETFs that may be potentially appealing to investors looking to protect portfolios against the ravages of inflation; many of the asset classes covered by products in the Precious Metals and Inflation-Protected Bonds ETFdb Categories have historically been used as hedges against rising prices. But as the ETF industry has evolved, multiple issuers have also introduced products with the explicit objective of delivering returns that exceed the rate of inflation [see Inflation ETF Special: 25 Ideas To Fight Rising Prices].

IndexIQ launched its Real Return ETF (CPI) in late 2009; that ETF-of-ETFs maintains a core holding in short-term bonds with satellite positions in asset classes that may include international equities, commodities, and currencies. WisdomTree also recently debuted a Real Return Fund (RRF) that is actively-managed. That ETF is tilted towards inflation-protected bonds, including debt linked to inflation metrics from issuers in the U.S. as well as developed and emerging markets around the world. RRF also maintains a meaningful allocation to commodities, another asset class that should have obvious appeal in inflationary environments.

First Trust does not currently offer any actively-managed ETFs. In May the company had detailed plans for an actively-managed North American Energy Infrastructure ETF that would invest in U.S. and Canadian companies deemed to be engaged in the energy infrastructure segment of the energy and utilities sectors, including MLPs and pipeline and power utility companies.

No expense ratios or ticker symbols were mentioned in the filing.

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Disclosure: No positions at time of writing.