The Best ETFs To Beat Inflation
Vanguard Short-Term Inflation Protected Securities ETF (VTIP)
Expense Ratio
0.04%
Dividend Yield
5.75%
10-Year Average Annualized Return
1.58%
Expense Ratio
0.04%
Dividend Yield
5.75%
10-Year Average Annualized Return
1.58%
Why We Picked It
Treasury Inflation-Protected Securities (TIPS) are government bonds specifically designed to protect the purchasing power of your money from inflation. The Vanguard Short-Term Inflation-Protected Securities ETF aims to duplicate the returns of the Bloomberg U.S. Treasury Inflation-Protected Securities Index, which tracks TIPS with a maturity of five years or less.
TIPS are issued with a set maturity date which is paid on the principal value of the bond. As inflation rates change, so does the principal value of the bond. When inflation rises, the interest payments rise as well. VTIP’s focus on short-term durations of less than five years aims to provide returns in line with the current inflation rate while maintaining lower volatility.
VITP provides a simple, cost-effective way to protect your cash from rising inflation rates. The 0.04% expense ratio is rock-bottom, and the ETF structure is much more convenient to buy than purchasing individual TIPS.
As interest rates rise, the fund’s value might drop a bit, and this price decline will be offset as new bonds with higher yields replace lower coupon-rate bonds. As interest rates become more stable, so will VTIP’s price. This fund is best for money you can leave invested for at least one year.
SPDR SSGA Multi-Asset Real Return ETF (RLY)
Expense Ratio
0.50%
Dividend Yield
5.68%
10-Year Average Annualized Return
2.66%
Expense Ratio
0.50%
Dividend Yield
5.68%
10-Year Average Annualized Return
2.66%
Why We Picked It
We believe the SPDR SSGA Multi-Asset Real Return ETF might be the best inflation ETF. This actively managed fund holds shares of other ETFs that track market sectors expected to outperform the inflation rate.
RLY is backed by a quantitative model, with additional human oversight for fundamental metrics and economic environment analysis. The fund measures performance against two benchmarks, the Bloomberg U.S. Government Inflation-Linked Bond Index and the DBIQ Optimum Yield Diversified Commodity Index Excess Return Index, which tracks futures across 14 commodities.
The holdings of this ETF include assets most resistant to inflation. These include 11 SPDR ETFs that track inflation-hedging asset classes like commodities, infrastructure, domestic and international real estate, energy, metals, 10-year and short-term TIPS, and agribusiness.
ProShares Inflation Expectations ETF (RINF)
Expense Ratio
0.30%
Dividend Yield
1.57%
10-Year Average Annualized Return
0.3%
Expense Ratio
0.30%
Dividend Yield
1.57%
10-Year Average Annualized Return
0.3%
Why We Picked It
Another actively managed fund, the ProShares Inflation Expectations ETF uses hedging strategies to provide a comparable return to the 30-year breakeven inflation rate. This measure of expected inflation is the difference between the yield of a regular bond and an inflation-linked bond of the same maturity.
RINF tracks the performance of the FTSE 30-Year TIPS Index by holding 30-Year TIPS and selling standard U.S. Treasury bonds short.
Over the past five years, RINF has done a great job in delivering capital preservation, income generation and modest appreciation. Recently, the fund’s managers have better honed their strategy, finding success in dealing with rising inflation and higher interest rates.
Schwab U.S. REIT ETF (SCHH)
Expense Ratio
0.07%
Dividend Yield
3.03%
10-Year Average Annualized Return
4.29%
Expense Ratio
0.07%
Dividend Yield
3.03%
10-Year Average Annualized Return
4.29%
Why We Picked It
Real estate is known for holding up well in the face of rising inflation, even if it takes time to gather momentum when rising interest rates dampen the industry. The Schwab U.S. REIT ETF tracks the total returns of the Dow Jones Equity All REIT Capped Index. This index includes most U.S. real estate investment trusts (REITs), except mortgage and hybrid REITs.
REITs must pay out 90% of their income in dividends, which is a great choice for generating reliable cash flow. Most income from REITs is taxed as ordinary income, so you may want to buy a REIT in your retirement account rather than a taxable brokerage account.
This inflation-fighting REIT ETF owns 134 real estate companies, including American Tower, Prologis, Crown Castle, Equinix, Public Storage and Realty Income. The fund is well-diversified across the entire property universe. Consider dollar-cost averaging into this fund, as its currently high price-to-earnings ratio suggests it’s richly valued.
Invesco DB Commodity Index Tracking Fund (DBC)
Expense Ratio
0.85%
Dividend Yield
0.64%
10-Year Average Annualized Return
-1.11%
Expense Ratio
0.85%
Dividend Yield
0.64%
10-Year Average Annualized Return
-1.11%
Why We Picked It
Commodities perform very well during inflationary periods, and it’s no different this time around. Rising prices make raw materials like wheat and cattle, oil and iron, sugar, cotton and coffee more valuable. Investing in commodities typically means buying futures contracts, which explains why commodity ETFs engage in lots of hedging and charge higher management fees than their more passive brethren.
The Invesco DB Commodity Index Tracking Fund aims to replicate the performance of the DBIQ Optimum Yield Diversified Commodity Index, an index of the 14 most traded physical commodities globally. The futures held by the fund include oil, gas, gold, agriculture and metals.
DBC has outperformed its cohort in six of the last seven and a half years. There is no yield from DBC since commodity investing is speculative, and the only income is the return of principal, not distributions.
Vanguard Total World Stock ETF (VT)
Expense Ratio
0.07%
Dividend Yield
2.03%
10-Year Average Annualized Return
8.46%
Expense Ratio
0.07%
Dividend Yield
2.03%
10-Year Average Annualized Return
8.46%
Why We Picked It
You might be surprised to find a diversified stock fund on a list of best inflation ETFs, but hear us out. Historically, the stock market tends to perform well during inflationary periods, so exposure to the global stock market can be one way to beat inflation.
The Vanguard Total World Stock ETF is a low-cost and geographically diversified fund that invests in foreign and U.S. stocks. VT tracks the performance of the FTSE Global All-Cap Index and owns nearly 9,500 stocks with a median market cap of $63 billion.
VT is much more reasonably valued after this year’s market declines. The weighted geographic exposure includes companies in North America (64%), Europe (16%), Asia-Pacific (11%), emerging markets (10%), and the Middle East (0.2%). The top holdings represent well-known global brands with sound growth prospects.
Methodology
Our approach to picking the best ETFs for inflation was driven by broad research into the sectors that typically outperform during inflationary periods. Beginning from understanding which asset classes are the best inflation hedges, we assembled a list of funds that focused on TIPS, commodities, real estate and stocks.
The top two funds on our list are dedicated inflation-hedging funds. Among the others are two actively managed funds with reasonable expense ratios and sensible investment strategies. We then drilled down to select representative funds from the other sectors. Besides the commodity ETF, which uses a hedging strategy, all the other picks are low-fee, passively index funds.
To learn more about our rating and review methodology and editorial process, check out our guide on How Forbes Advisor Rates Investing Products.
