As the Fed Tightens, Get Exposure to Real Assets

Controlling inflation continues to be the primary objective of the US Federal Reserve. Capital markets are already expecting a 50 basis point rate hike at the next Fed meeting.

“Most investors have no experience with runaway inflation and its impact on the market,” Rida Morwa wrote in Seeking Alpha. “The last time the United States experienced a significant increase in inflation was in the 1970s. We have seen hyperinflation in other countries where the value of their currencies rapidly disappears as the Money is printed en masse.One can think of Germany after the World Wars, for example, where a wheelbarrow of money was needed to buy a simple piece of bread.

One way to hedge against inflation is to buy real assets. In the case of exchange-traded funds (ETFs), opportunities are available to gain global exposure to real assets in a single fund.

A ETFs to consider is the FlexShares Real Asset Allocation Index Fund (A SET ). As of April 29, the top three allocations were real estate, industrials and utilities.

This superior real estate exposure is an ideal selection in the current market environment. Property prices have skyrocketed since the pandemic and show no signs of stopping amid runaway inflation.

“Real estate benefits directly from inflation, while floating rate investments benefit from the Federal Reserve’s response to inflation,” Morwa added.

Instead of holding multiple assets like precious metals or commodities like oil, A SET can give investors exposure to all of this via a single position. In addition, volatility is minimized due to A SET holding companies that represent exposure to real assets instead of the real tangible assets themselves.

A SET seeks investment results that generally correspond to the price and yield of the Northern Trust Real Assets Allocation Index. The Underlying Index measures the performance of an optimized allocation of the Underlying Funds which aims to provide exposure to certain real assets and to minimize the overall volatility of an investment in the Underlying Funds.

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