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5 Sector ETFs to Win from a 9% U.S. Inflation

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Annual inflation rate in the United States increased to 9.1% in June from a 41-year high of 8.8% in April, per tradingeconomics, but above market forecasts of 8.8%. Energy prices jumped 41.6% due to rise in gasoline prices (59.9%, the largest increase since March 1980), fuel oil (98.5%), electricity (13.7%, the largest increase since April 2006), and natural gas (38.4%, the largest increase since October 2005). Food costs jumped 10.4%, the most since February 1981, with food at home jumping 12.2%, the most since April 1979.

Prices also surged massively for shelter (5.6%), household furnishings and operations (9.5%), new vehicles (11.4%), used cars and trucks (1.7%), and airline fares (34.1%). Core CPI which excludes food and energy rose 5.9%, slightly below 6% in May, but above forecasts of 5.7%

Against this backdrop, we suggest a few sector ETFs that can be worth investing at the time of rising inflation. Below we highlight those.

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. The operating backdrop of the sector, too, is bullish. Oil prices have been rising since the beginning of 2022. Energy prices jumped 41.6% in June, the most since April 1980. SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) could be a good play here.

Auto

The price inflation of new cars has been palpable. The index for new vehicles increased 0.7% in June after rising 1% the previous month. First Trust S-Network Future Vehicles & Technology ETF (CARZ - Free Report) can thus be played on the uptick in car price inflation.

The Zacks Rank #3 (Hold) fund  follows the S-Network Electric & Future Vehicle Ecosystem Index, which constituents are chosen by selecting the eligible Pure-Play companies in descending order of float-adjusted market capitalization until 100 constituents have been selected.

Real Estate

Prices also surged massively for shelter (5.6%, the most since February 1991). Rising home prices also boosted the demand for real estate. Zacks Rank #2 (Buy) Vanguard Real Estate ETF (VNQ) should thus win.

Retail

The apparel index rose 0.8% in June, following a 0.7% increase in May. The index for household furnishings and operations continued to rise, increasing 0.4% sequentially.  Other indexes that increased in June include education (+0.4%), personal care (+0.4%), alcoholic beverages (+0.4%), and tobacco (+0.6%). The Zacks Rank #2 ETF SPDR S&P Retail ETF (XRT - Free Report) is a great bet in this context.

Leisure

The recreation index jumped 0.3% in June. This means Invesco Dynamic Leisure And Entertainment ETF (PEJ - Free Report) is worth a look.