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Consumer Price Sees Biggest Jump in 13 Years: ETFs to Gain

The cost of living in the United States has surged the most in 13 years as economic recovery has gathered momentum. This is especially true as consumer prices increased 5.4% year over year in June, representing the biggest monthly gain since August 2008. More than one-third price surge came from used cars and trucks.

The so-called core price index, which excludes the often-volatile categories of food and energy, rose 4.5%. Prices have risen for almost everything from raw materials to food as well as shipping to travel-related services costs thanks to accelerating demand and limited supply. There have been shortages on the supply side of the U.S. economy given lack of commodities, labor shortages and other inputs to produce the totality of all the goods and services demanded by other businesses and American consumers.

In particular, supply chain bottlenecks led to a rise in prices of steel, lumber, agricultural commodities, industrial metals like copper and house rents. Additionally, a global semiconductor shortage has curtailed the motor vehicle production, leading to spike in vehicle prices. Huge infrastructure and stimulus packages in the United States have also been viewed as a key contributing factor to inflation. As a result, groceries like fruits, vegetables, meats, poultry, fish, and eggs are getting more expensive while gas prices are also rising (read: 5 Winning ETF Strategies for the Second Half).

The prices are expected to accelerate further with the biggest vaccination drive on the way and economy reopening. With nearly 160 million Americans immunized, demand for travel is picking up. Lodging away from home, including hotel and motel accommodation, shot up 7.9%. Prices for airline tickets rose 2.7%.

How to Tap?

Investors could make some profits by investing in ETFs that are benefiting from rising consumer price. Below, we highlight five funds from different corners of the space that could be compelling choices for investors amid growing inflation:

Breakwave Dry Bulk Shipping ETF BDRY

A speedy global economic recovery has brightened the demand outlook for all vessel categories, leading to a spike in the shipping rates. This fund provides exposure to the dry bulk shipping market through a portfolio of near-dated freight futures contracts on dry bulk indices. The fund has accumulated about $95.6 million in AUM and trades in a good volume of about 557,000 shares per day on average. It charges a higher annual fee of 3.32% (read: Top Performing ETFs of the First Half).

Invesco DWA Basic Materials Momentum ETF PYZ

As prices for various types of materials have been on rise, the material sector is poised for solid growth. This ETF tracks the Dorsey Wright Basic Materials Technical Leaders Index, giving investors exposure to 34 stocks that are showing relative strength (momentum). Metals & mining dominates the fund’s returns at 41.9% while chemicals accounts for 39.6% of the portfolio. The fund has amassed $213.2 million in its asset base while charges 60 bps in fees and expenses. Volume is paltry as it exchanges nearly 42,000 shares in hand a day. The fund has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

iShares U.S. Home Construction ETF ITB

The housing market has been on a tear buoyed by lower mortgage rates, skyrocketing demand and limited supplies. The thirst for home buying is rising even in the face of increasing housing prices, thus providing huge profits to homebuilders. ITB provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With AUM of $2.2 billion, it holds a basket of 46 stocks with a heavy concentration on the top two firms. The product charges 42 bps in annual fees and trades in a heavy volume of around 3.1 million shares a day on average. It has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: Is the Rally in Homebuilding ETFs Over?).

Vanguard Real Estate ETF VNQ

Higher rents due to shortage of homes are driving the real estate sector higher. This fund follows the MSCI US Investable Market Real Estate 25/50 Index and holds 178 stocks in its basket. Specialized REITs take the largest share at 37.4% while residential REITs and industrial REITs round off the top three with double-digit exposure each. Expense ratio comes in at 0.12%. VNQ is the most popular and liquid ETF with AUM of $43.1 billion and an average daily volume of around 4.1 million shares a day. It has a Zacks ETF Rank #3 with a Medium risk outlook.

SPDR S&P North American Natural Resources ETF NANR

This ETF provides exposure to U.S. and Canadian publicly traded large and mid-cap companies within the sub???industries of the energy, metals & mining or agriculture categories with 45%, 35% and 20% share, respectively. It follows the S&P BMI North American Natural Resources Index, holding 30 stocks in its basket. The fund has amassed $511.1 million and charges 35 bps in annual fees. It trades in a moderate volume of 106,000 shares a day on average.
 


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Vanguard Real Estate ETF (VNQ): ETF Research Reports
 
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
 
SPDR S&P North American Natural Resources ETF (NANR): ETF Research Reports
 
Invesco DWA Basic Materials Momentum ETF (PYZ): ETF Research Reports
 
Breakwave Dry Bulk Shipping ETF (BDRY): ETF Research Reports
 
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