Concerns about inflation are top of mind again, with consumer pricesproducer prices higher last week. This impacted the bond market as well as commodity prices.
According to the Bureau of Labor Statistics, the headline figure for the Consumer Price Index (CPI) rose to 3.5% year-over-year while core CPI remained at 3.8%. Compared to last month, headline and core consumer prices both increased 0.4%. All readings came in higher than their respective forecasts. The headline figure for the Producer Price Index (PPI) rose to 2.1%, its highest level since April 2023.
Inflationary Impact on Fixed Income ETFs
Earlier in April, the futures market was indicating most investors expected the Fed to restart its rate cutting program in June. However, following the CPI data on Wednesday, expectations for a reduction fell sharply. Meanwhile, the yield on the 10-year Treasury bond had its largest one-day jump in 19 months and was back above 4.5%.
We saw intermediate-term bond ETFs trade with higher-than-normal volume last week. Fixed income ETFs like the iShares iBoxx $Investment Grade Corporate Bond ETF (LQD ) and the SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB ) are sought after during times of bond market volatility. While the value of the bonds inside has fallen in 2024 as yields rose, the liquidity of these ETFs appeals to many seeking high-quality fixed income exposure. Meanwhile, the Vanguard Short-Term Inflation Protected Securities ETF (VTIP ) was up 0.6% year-to-date as of April 10.
On Thursday April 18, VettaFi will be hosting a Fixed Income Symposium starting at 11am. This three-hour event will give advisors three continuing education credits and great insights. Don’t miss the chance to tap into the community’s expertise.
We will be covering what active managers think about the Fed’s next move well as how much credit risk advisors should take on. Experts from leading active management providers like American Century, Capital Group, Goldman Sachs, PIMCO and T Rowe Price will answer the questions you and your clients are asking.
Gold is Shining But is Not Alone
The prices of gold, oil, silver and some other commodities have recently climbed higher amid inflationary concerns. For example, the SPDR Gold MiniShares (GLDM ) was up 13% year-to-date as of April 10, aided a 7% gain in the past month. Advisors often turn to gold ETFs to diversify their portfolios away from stocks and bonds.
Meanwhile, the VanEck Commodity Strategy ETF (PIT ) was up 10% this year. PIT invests in futures contracts tied to agriculture and energy commodities as well as precious and industrial metals.
GLDM is the second largest position in the AXS Astoria Inflation Sensitive ETF (PPI ). This actively managed ETF also holds other commodities and TIPS ETFs like VTIP. In addition, PPI owns inflation-sensitive stocks with strong fundamentals like EOG Resources and United Rentals. PPI was up 17% to start 2024.
PIT is the second largest holding in the VanEck Inflation Allocation ETF (RAAX ). This actively managed ETF owns other VanEck ETFs and third-party ETFs like the Energy Select Sector SPDR (XLE ) and the Global X US Infrastructure ETF (PAVE ). RAAX was up 8% so far in 2024.
For advisors wanting an active approach but focused only on commodities, the Direxion Auspice Broad Commodity Strategy (COM ) is one fund to consider. COM can be long or flat 12 commodities. For example, recently the fund was long copper, crude oil, cotton, gold, heating oil and silver. Year-to-date, COM was up approximately 7%.
VettaFi expects to be discussing commodities on May 30 at the Alternatives Symposium. Hopefully you will join us for both VettaFi virtual events.
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