Bond ETFs are a low-cost way to add inflation fighters to portfolios. The ETFs listed below can be used in a portfolio to help combat the corrosive impact of inflation. Investors may want to consider using these to complement or replace existing fixed income holdings while maintaining similar yield and duration characteristics.
iShares TIPS Bond ETF (TIP) and iShares 0-5 Year TIPS Bond ETF (STIP): Invest in Treasury Inflation Protected Securities (“TIPS”), which are government bonds whose values adjust with inflation
iShares Inflation Hedged Corporate Bond ETF (LQDI): Holds shares of the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and positions in inflation swaps. This ETF can be used to manage inflation risk while seeking income from investment grade bonds.
iShares Fallen Angels USD Bond ETF (FALN): Invests in bonds from companies that have been downgraded, known as fallen angels. These companies tend to be more correlated with the economic cycle and can benefit from inflationary environments.
iShares Convertible Bond ETF (ICVT): Invests in convertible bonds, which give investors the option to convert their position into shares of the issuer’s stock. Stocks tend to outperform bonds during bouts of high inflation.
Inflation can erode investors’ purchasing power. By allocating to investments that are poised to benefit from rising inflation, such as TIPS or more cyclical sectors, investors can position their portfolios to help maintain the value of their investments.