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Another New ETF on Inflation (CPII) Hits Market

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Red-hot inflation reading has been hitting headlines across the developed markets lately. Annual inflation rate in the United States unexpectedly accelerated to 8.6% in May of 2022, the highest since December of 1981 and compared to market forecasts of 8.3%.

No wonder, Ionic Capital Management LLC (Ionic) in partnership with Tidal ETF Services, LLC (Tidal) launched the Ionic Inflation Protection ETF (CPII - Free Report) recently. We have seen many ETF launches on inflation protection this year. The fund is actively-managed in nature.

We all understand that the new ETF launch is very timely and may amass considerable assets in the near term. Let’s delve a little deeper.

CPII in Focus

The Ionic Inflation Protection ETF looks to generate positive returns during periods of rising inflation and inflation expectations as well as during periods of increasing long-term interest rates and fixed income volatility.

The fund invests primarily in a portfolio of inflation swap agreements on the Consumer Price Index, interest rate swaps, swaptions and U.S. Treasury Obligations including U.S. Treasury Inflation-Protected Securities or TIPS. Cash takes about 7.29% of the fund.

How Does It Fit in a Portfolio?

“While the world has been in a deflationary environment for the past few decades, it now appears that period has ended,” said Doug Fincher, portfolio manager at Ionic, in a news release. “We have shifted to an inflationary environment that will persist at elevated levels even if current readings ultimately prove to be peak levels.”

One of the fund’s components is TIPS. TIPS ETFs offer robust real returns during inflationary periods unlike its unprotected peers in the fixed-income world. These securities pay an interest on an inflated-principal amount (principal rises with inflation) and when the securities mature, investors get either the inflation-adjusted principal or the original principal, whichever is greater. As a result, both the principal amount and the interest payments will keep on increasing with rising consumer prices.

Any Competition?

There are lot of products to beat inflation. Among TIPS, iShares TIPS Bond ETF (TIP - Free Report) is the most popular with an asset base of $30.9 billion. There are a lot new inflation-beating products launched this year. These are Amplify Inflation Fighter ETF (IWIN - Free Report) , Harbor AllWeather Inflation Focus ETF (HGER - Free Report) , AXS Astoria Inflation Sensitive ETF (PPI - Free Report) and JPMorgan Inflation Managed Bond ETF (JCPI - Free Report) .

PPI charges 71 bps in fees, HGER charges 68 bps, JCPI charges 25 bps in fees and IWIN charges 85 bps in fees. The new fund CPII charges 70 bps in fees.



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