Hedging inflation with bond ETFs

iShares Feb 25, 2022 Inflation

Learn how bond ETFs can help manage inflation.


Inflation, as measured by the Consumer Price Index, has soared as the economy has recovered from the global pandemic.  This increase in the cost of goods and services also impacts investors because it reduces the purchasing power of investment portfolios over time. For example, if a portfolio returns 5% but inflation is 3%, the “real return” (return after accounting for inflation) is only 2%.

BlackRock Investment Institute expects higher levels of inflation over the medium term. Even with higher rates, bond investors may have difficulty finding bonds that can keep up with inflation. However, with a few tweaks to bond allocations, investors can position their portfolios to fight inflation, rather than succumbing to it.

Inflation surged in 2022

Average consumer price index (CPI)

Chart showing inflation surges in 2022

Source: Bureau of Labor Statistics, as of 12/31/2022

Chart description: This chart shows historical vs. recent inflation as measured by the U.S. Consumer Price Index.


Rising prices at the grocery store and gas station

The economy’s supply and consumer demand dynamics

The Federal Reserve raising rates


Customize your portfolio to better respond to today’s inflationary environment by considering bond ETFs.

Your mix of stocks and bonds

Your credit quality, maturity or duration

Your fees or cost of the investment

On average, iShares and BlackRock bond ETFs cost 76% less than active mutual funds.*

* Morningstar as of 12/31/22. Comparison is between the Prospectus Net Expense Ratio for the average Fixed Income iShares ETF (0.20%) and the average Fixed Income Open-End Mutual Fund (0.83%) available in the U.S. ex money market funds.


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.