AXS Investments, has recently launched its first Exchange-Traded Fund (ETF) the AXS Astoria Inflation Sensitive ETF (PPI). The launch seems to be extremely timely as the developed world is striving to beat sky-high inflation currently.
The consumer price index (CPI) jumped at its fastest annual pace in nearly 40 years in November. The datapoints were almost in line with market expectations. Consumer prices soared 6.8% year over year in November, which was more than the 6.2% rise in October and slightly higher than the 6.7% expected. Excluding food and energy, inflation went up to 4.9% in November from 4.6% in October, the highest since June of 1991.
U.S. producer prices in November increased 0.8% sequentially, the most since July and above market expectations of 0.5% due to supply and labor constraints and robust demand. Wholesale prices in the United States gained 9.6% in November from a year ago, marking the highest level since November 2010. The pace beat economists’ estimate of 9.2%. Wholesale prices increased at their fastest pace on record in November.
No wonder, the new ETF launch is very timely and may amass considerable assets in the near term. Let’s delve a little deeper (read: Best Index ETFs to Play the Surge in Inflation).
Inside PPI
PPI is a multi-asset ETF, which is active in nature and does not track a benchmark. The AXS Astoria Inflation Sensitive ETF seeks long-term capital appreciation in inflation-adjusted terms.
The portfolio includes an active mix of historically inflation-sensitive stocks and ETFs, including commodities, TIPS, cyclical stocks such as industrials, materials, banks, home builders, and more. The expense ratio of 0.71%.
There are 50 securities in the fund. Regions Financial Corp (NYSE:RF) (2.84%), Devon Energy (NYSE:DVN) (2.80%) and Marathon Oil (NYSE:MRO) (2.80%) are the top three holdings of PPI.
How Does It Fit In a Portfolio?
Commodities are often viewed as a hedge against inflation. Moreover, higher inflation is feared to weaken corporate earnings, which in turn, would hurt equity prices. In such a scenario, commodities may gain as an alternative investment.
TIPS ETFs offer robust real returns during inflationary periods unlike its unprotected peers in the fixed-income world. These securities pay an interest on an inflated-principal amount (principal rises with inflation) and when the securities mature, investors get either the inflation-adjusted principal or the original principal, whichever is greater. As a result, both the principal amount and the interest payments will keep on increasing with rising consumer prices.
Cyclical sectors tend to follow the economic cycle of expansion and recession. With the economy gaining momentum and inflation rising, these sectors are likely to fare well. Since PPI offers exposure to the above-mentioned asset classes, the fund should be best-positioned in the current scenario.
Any Competition?
There are lot of products to beat inflation. Among TIPS, iShares TIPS Bond ETF TIP is the most popular with an asset base of $38.84 billion. Among commodities, gold bullion ETFs like SPDR Gold Shares (NYSE:GLD) GLD is also a great bet. However, PPI offers a mixed exposure where the product wins.
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