According to two ETF experts, inflation will again dominate the market this year.
“This is going to be a big story in 2022,” Tom Lydon, CEO of ETF Trends, told CNBC.ETF Edge“in Monday.
Furthermore, the price increase and Federal Reserve A willingness to raise interest rates in response could spell trouble for the fixed-income market – long-term bonds typically fall when interest rates rise.
“Most don’t remember investing in fixed income during times of rising interest rates. It’s not good for fixed income portfolios. We always survey advisors who are shifting their 60-40 strategy to the upside. 70-30 or even 80-20,” says Lydon, referring to the general rule of thumb for a portfolio of 60% weighting for stocks and 40% for fixed income.
For example, instead of money flowing into a bond ETF, Lydon says investors are instead looking for equity dividends or options overlay strategies like JEPI JPMorgan Equity Premium Income ETF. That JEPI ETF has grown by more than 12% in the past 12 months, while a traditional bond ETF like AGG US Core Synthetic Bond ETF and BND total bond market ETF fell.
“I think we’re going to see a lot of that sort of strategy come to the surface,” says Lydon.
Astoria Portfolio Advisors chief investment officer John Davi has developed a way to hedge against inflation if prices continue to rise even as the Fed tightens monetary policy. At the end of 2021, the company launched PPI AXS Astoria ETF is sensitive to inflation.
“Going back a year, a year and a half ago, I was on CNBC and I said, ‘Look, I think rates are going up, inflation is going up… We have seven ETFs that we’re trying to see. Try to use it to work together on the topic of inflation Consider a potential ETF that offers a one-code solution that gives you broad market exposure to more than just cyclical stocks that benefit from inflation inflation but also physical goods, commodity stocks and CAT.’ “
His ETF is weighted 70% to 80% on cyclical stocks, 10% to 15% on commodities, and 5% to 10% on TIPS. Top holdings include Bancorp Western Alliance, Financial sector, Zion Joint Stock Company and Devonian energy.
“You should hug [inflation] and then look for profitable strategies so that ETFs have four sectors: industrial, energy, materials, and banking. These sectors have historically been the most sensitive to rising inflation,” said Davi.
The PPI ETF is up nearly 4% this week. By comparison, S&P 500 fell more than 1%.
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