Five ETFs To Hedge Against Inflation (GRES, USO, DBA, CPI, TIP, KFT, ABX, TSN, HRL)

As the US government has resorted to excessive spending measures to keep the economy from completely crumbling, many investors suggest that inflation is inevitable and could even prevail in the coming months. 

Current economic data suggest that inflation is running lower than expected; however there are numerous reasons to think that inflation will eventually be inevitable.  Some of these reasons include the Federal Reserve’s implementation of QE2, which launched in early November, the increases in money supply in the earlier stages of the Great Recession to ignite a spark in the US economy and rising commodity prices are likely to take their toll on the consumer price index (CPI).  In fact, rising prices have already started to emerge, evident through the recent rise in energy prices (i.e. crude oil and gasoline), food prices (i.e. wheat, sugar, coffee and soybeans) and airline tickets. 

At the end of the day, although inflation is not prevailing, signs are starting to emerge.  Some ways to protect against inflation include:

  • iShares Barclays TIPS Bond Fund (NYSE:TIP), which is one of the most popular way to hedge against inflation.  TIP is designed to generate a yield which adjusts to the CPI, meaning that as CPI rises, TIP’s yield rises and vice versa.
  • IndexIQ CPI Inflation Hedged ETF (NYSE:CPI), which aims to track an Index that seeks to generate a rate of return that is above inflation which is measured by the consumer price index.
  • PowerShares DB Agriculture Fund (NYSE:DBA) holds futures contracts in food based commodities such as corn, wheat, sugar and soybeans, which could witness price appreciation as inflation looms.
  • US Oil Fund (NYSE:USO) which is a play on crude oil futures contracts.  Historically speaking, crude oil appreciates in value during times of inflation, which would enable USO to reap the benefits.
  • IndexIQ ARB Global Resources ETF (NYSE:GRES) which holds global companies that operate in commodity-specific market segments and whose equity securities trade in developed markets.  As of 1/5/2011, GRES’ top holdings included Hormel Foods Corp. (NYSE:HRL), Tyson Foods Inc. (NYSE:TSN), Barrick Gold Corp. (NYSE:ABX) and Kraft Foods Inc. (NYSE:KFT).

Written By Kevin Grewal From ETF Tutor  Disclosure: No Positions 

Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton. He is a contributing author on The Street – his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville.

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