Investors Buy This ETF to Protect Against Inflation

Many investors allocate assets to infrastructure to protect against long-term inflation. When inflation rises, most infrastructure operators have historically passed through the cost increases to users per long-term contracts that typically underpin infrastructure business models. Since 2001, global listed infrastructure has been able to cover the inflation effects of high inflationary periods 73% of the time, outpacing more traditional asset classes like fixed income (62%), global equities (67%), and TIPS (69%), according to FlexShares. 

NFRA saw $100 million in net inflows during June as the CPI reading for May showed an 8.6% increase, proving inflation had not yet peaked. The fund has taken in $151 million in net inflows year-to-date as of the end of June, according to VettaFi.

NFRA seeks investment results that generally correspond to the price and yield performance of the STOXX Global Broad Infrastructure Index. The market cap-weighted index invests in companies that derive at least 50% of their revenues from segments including energy, communications, utilities, transportation, and — in an unusual twist — government outsourcing, like hospitals, prisons, and postal services, according to VettaFi. 

To maintain diversification, the index imposes certain constraints, such as limits on the overall weighting of each segment. The portfolio is dominated by North American equities, followed by Japan, Australia, and the U.K.

Infrastructure issuers tend to have predictable cash flows, as they provide essential services used in all economic environments. Infrastructure stocks carry both equity and interest rate exposure and can provide an alternative source of income, according to FlexShares.

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