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4 Sector ETFs to Win From February Inflation Report
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The CPI jumped at its fastest annual pace in 40 years in February. The datapoints were almost in line with market expectations. Consumer price index (CPI) soared 7.9% year over year in February. Excluding volatile energy and food categories, the CPI rose 6.4%, the most in 40 years. Rising commodities prices, higher demand and supply chain disruptions, and a low base effect from last year continued to raise prices.
The pricing pressure was broad-based, with energy costs marking the largest gain (25.6% versus 27% in January), namely gasoline (38% versus 40% in January). Inflation accelerated for shelter (4.7% vs 4.4%); food (7.9% vs 7%, the largest uptick since July of 1981), namely food at home (8.6% vs 7.4%); new vehicles (12.4% vs 12.2%); and used cars and trucks (41.2% vs 40.5%), per tradingeconomics.
Against this backdrop, we suggest a few sector ETFs that can be worth investing at the time of rising inflation. Below we highlight those.
Sectors to Gain
Energy
The energy sector tends to perform well in an inflationary environment. Revenues of energy stocks are dependent on energy prices, a key factor of inflation indices. Such firms surpassed inflation 71% of the time within a time span of 1973-2020 and delivered an annual real return of 9.0% per year on average.
The operating backdrop of the sector too is bullish. With the Russia-Ukraine ceasefire treaty failing, we expect the oil rally to continue ahead. SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) could be good play here.
Consumer Staples
Food-at-home inflation is rising faster than food-away-from home inflation, indicating the hot groceries market. Consumer staples normally pass on cost increases to consumers to maintain profit margin. With consumer staples being a non-cyclical sector, the sheer necessities of staples can’t even deter consumers from buying those goods. Hence, the sector should hold up well in an inflationary environment. Invesco S&P 500 Equal Weight Consumer Staples ETF is a good pick here.
Real Estate
The ETFs on the U.S. real estate sector has been surging lately on still-low rates. Rising home prices also boosted the demand for real estate. Zacks Rank #1 (Strong Buy) Vanguard Real Estate ETF (VNQ - Free Report) should thus win. VNQ yields 2.85% annually.
Auto
The price inflation of cars has been palpable. The index for new vehicles rose 0.3% after zero per cent increase in January. First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report) can thus be played on the uptick in car price inflation.
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4 Sector ETFs to Win From February Inflation Report
The CPI jumped at its fastest annual pace in 40 years in February. The datapoints were almost in line with market expectations. Consumer price index (CPI) soared 7.9% year over year in February. Excluding volatile energy and food categories, the CPI rose 6.4%, the most in 40 years. Rising commodities prices, higher demand and supply chain disruptions, and a low base effect from last year continued to raise prices.
The pricing pressure was broad-based, with energy costs marking the largest gain (25.6% versus 27% in January), namely gasoline (38% versus 40% in January). Inflation accelerated for shelter (4.7% vs 4.4%); food (7.9% vs 7%, the largest uptick since July of 1981), namely food at home (8.6% vs 7.4%); new vehicles (12.4% vs 12.2%); and used cars and trucks (41.2% vs 40.5%), per tradingeconomics.
Against this backdrop, we suggest a few sector ETFs that can be worth investing at the time of rising inflation. Below we highlight those.
Sectors to Gain
Energy
The energy sector tends to perform well in an inflationary environment. Revenues of energy stocks are dependent on energy prices, a key factor of inflation indices. Such firms surpassed inflation 71% of the time within a time span of 1973-2020 and delivered an annual real return of 9.0% per year on average.
The operating backdrop of the sector too is bullish. With the Russia-Ukraine ceasefire treaty failing, we expect the oil rally to continue ahead. SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) could be good play here.
Consumer Staples
Food-at-home inflation is rising faster than food-away-from home inflation, indicating the hot groceries market. Consumer staples normally pass on cost increases to consumers to maintain profit margin. With consumer staples being a non-cyclical sector, the sheer necessities of staples can’t even deter consumers from buying those goods. Hence, the sector should hold up well in an inflationary environment. Invesco S&P 500 Equal Weight Consumer Staples ETF is a good pick here.
Real Estate
The ETFs on the U.S. real estate sector has been surging lately on still-low rates. Rising home prices also boosted the demand for real estate. Zacks Rank #1 (Strong Buy) Vanguard Real Estate ETF (VNQ - Free Report) should thus win. VNQ yields 2.85% annually.
Auto
The price inflation of cars has been palpable. The index for new vehicles rose 0.3% after zero per cent increase in January. First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report) can thus be played on the uptick in car price inflation.