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‘Investors are looking for ways to combat inflation’ through ETFs, strategist says

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ETF Think Tank Director of Research Cinthia Murphy joins Yahoo Finance Live to talk about growth within ETFs labeled as "inflation fighters," ETFs incorporating oil, metal, and agriculture commodities into them, and rising commodity prices amid the Fed's inflation policies and the Russia-Ukraine conflict.

Video transcript

BRAD SMITH: Welcome back to Yahoo Finance Live, everyone. For investors looking to hedge against inflation, the combination of commodities and exchange traded funds are one strategy to counter heightened market uncertainty. For more, we've got Cinthia Murphy, who is the ETF think tank director of research joining us now as part of our ETF report brought to you by Invesco QQQ. Cinthia, great to have you here with us today. First and foremost, can we talk about the type of volume that we've seen in this type of portfolio strategy?

CINTHIA MURPHY: On these inflation so-called inflation fighter ETFs, they're actually really new to the market I think the oldest one in this category, it's less than a year old. So volume is still picking up. It's kind of early days for these funds because for 40 years, we haven't really worried about inflation. So product development wasn't there in that space, other than just classic commodity funds. But there's some of these funds, if you put it in percentage terms, they're growing, like, 1,000% a month. Or granted, you're going from a million dollars to $5 million in assets, so percentage-wise, it looks huge. In nominal terms, it looks small.

But the point is, investors are looking for ways to combat inflation. So we're seeing these types of inflation fighters, inflation beneficiaries, really pop up and find a traction really quickly because that's what they come out and promised to do.

BRAD SMITH: All right, inflation fighters. OK, so let's go further into this. How long might using commodity ETFs or other sorts of inflation fighters to hedge against inflation hold up in light of current events?

CINTHIA MURPHY: So it really depends on what approach you choose. So if you look at three different approaches that are a classic right now, so you have one called IWIN is the ticker. And it's your inflation fighting in a really diversified basket because they have commodities. They also have some stocks that should benefit from inflation prospects. They have Bitcoin. Up to 20% of the fund can be Bitcoin in this mix. They have land, so REITs that are really landowners. So it's a really diversified mix of asset types to combat inflation.

When you look at a competing fund like INFL, you're just-- it's a stock portfolio. So it's companies that are kind of considered asset-light, if you will, so mining companies or companies that can increase their revenue without really increasing their expenses. That's a fully stock portfolio. And then you have one that's HGER, for example, that also comes out as an inflation fighter on the name. And it's a commodity portfolio. It has 24 different commodities in there. Commodities are a classic inflation hedge.

So these different assets are going to perform differently in this environment, and it's how the mix overall works together. So it really depends on you. Do you want to have Bitcoin in your mix and some real assets like land in that portfolio? Or do you just want to have a basket of commodities? And the dynamics, the drivers will be a little bit different, but they are all put together and tagged as inflation fighters. So we'll be watching to see if they deliver on their promise now that they're going to be tested for the first time.

BRAD SMITH: OK, and so in one part of the trading situation, you've got oil prices slipping from some of the highest levels that we had seen in decades in outsized evaluation to another part of the trading situation. You've got the Fed commencing a rising rate environment to combat inflation. Where does the biggest opportunity lie presently when you think about some of the commodity ETFs or inflation fighter ETFs?

CINTHIA MURPHY: So in the commodity space, oil has had what a run. I mean, it's gone from 14-year highs to a bear market in a week. So it's been a crazy place to really think of it as an inflation fighter at the moment. Even gold, gold is struggling right now as well. It's a safe haven, and people love it in terms of trouble, but the prices are softening right now. So what has really held up well is your kind of real asset, your agricultural commodities because they really have the supply story behind them.

So things like wheat futures, corn futures, diversified commodity baskets, funds like PGBC, these are strategies that have held up much better. And a lot of money has gone into these funds this year. I think commodities ETF so far have picked up something like $15 billion in 2022, which is unheard of for the segment for as long as I can remember. And I've been around a long time. So it's been a really strong year specifically, too, for agricultural commodities in a way we haven't seen in recent times. So they really are holding out the best, as we enter this inflation conversation and higher rates.

BRAD SMITH: I have to hustle to my finish here, but with regard to some of the geopolitical tensions that we've seen, how have wheat and corn futures held up at this point in time from what you've been tracking?

CINTHIA MURPHY: Wheat has had a phenomenal run because it is really heavily associated with the Ukraine, which is one of the largest exporters. Corn, I think it's an evolving story. What's interesting about the corn story is that we're about to enter the planting season in the US. And the price of fertilizer is really expensive right now. Potash, that goes into the fertilizer, is lacking. The price of natural gas is high, which makes fertilizer more expensive. And corn is a very fertilizer-heavy crop.

So what we're waiting to see is, will the price of fertilizer mean farmers in the US are going to plant less corn than they will soybeans? If that happens, then corn futures and the ETFs that own corn could really hold out really well and become great inflation fighters if that market really hits a supply snag. So the story initially was all about wheat. I think it's slowly transitioning into corn as we enter the planting season in the US, and to see how farmers choose between the corn and soybean, which they alternate. And so we'll see what story holds out better.

BRAD SMITH: Really fascinating type of hedge. Cinthia Murphy, who is the ETF Think Tank director of research, joining us here. Appreciate the time and insights and context as well, Cinthia. Thanks.

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