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The consumer price index increased 0.4% sequentially and 3.7% year over year in September, according to a Bureau of Labor Statistics report. Dow Jones estimates were 0.3% and 3.6%, respectively. The core inflation number, barring food and energy prices, matched with economists’ expectations at an increase of 0.3% on the month and 4.1% on a year-over-year basis. The data follows a stronger-than-expected producer price index reading for September.
Against this backdrop, we suggest a few sector ETFs that can be worth investing at the time of higher inflation. Below we highlight those.
Sector ETFs in Focus
Energy – iShares U.S. Oil Equipment & Services ETF (IEZ - Free Report)
Price of energy commodities rose 2.3% sequentially and 2.2% year over year in September.
The energy sector, which includes oil and gas companies, has historically offered upbeat performance in a rising inflationary environment. Such firms beat inflation 74% of the time and delivered an annual real return of 12.9% per year on average, per a research report of Hartford Funds.
The revenues of energy stocks are tied to energy prices, a key component of inflation indices. This time also, rise in oil prices increased inflation globally. And energy ETFs should emerge outperformers in this kind of scenario. IEZ is up 5.2% in the past three months (as of Oct 12, 2023).
Price of transportation rose 0.7% sequentially and 9.1% year over year in September. This shows that high transportation prices are also driving U.S. inflation. Investors thus can play transportation ETF XTN as the all-important holiday season has arrived and the companies within the fund have the ability to pass on higher prices to consumers.
Per a research report of Hartford Funds, equity REITs outperformed inflation 66% of the time and posted an average real return of 4.6%. Equity REITs own real-estate assets and may provide a limited inflation hedge via the pass-through of price increases in rental contracts and property prices. Price of shelter ose 0.6% sequentially and 7.2% year over year in September.
Notably, shelter makes up 32.77% of U.S. consumer price index, of which 7.8% is rent and 23.68% is private housing, per data from MacroMicro. Shelter costs rose 0.6% sequentially and 7.2% year over year in September.
Restaurants – AdvisorShares Restaurant ETF (EATZ)
The food-away-from-home index increased 0.4% sequentially and 6% year over year in September. This shows that high food prices in restaurants are also driving U.S. inflation. Investors thus can play restaurant ETF EATZ as the companies within the fund normally have the power to pass on higher prices to consumers amid the holiday season.
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4 Sector ETFs to Win on Sticky Inflation
The consumer price index increased 0.4% sequentially and 3.7% year over year in September, according to a Bureau of Labor Statistics report. Dow Jones estimates were 0.3% and 3.6%, respectively. The core inflation number, barring food and energy prices, matched with economists’ expectations at an increase of 0.3% on the month and 4.1% on a year-over-year basis. The data follows a stronger-than-expected producer price index reading for September.
Against this backdrop, we suggest a few sector ETFs that can be worth investing at the time of higher inflation. Below we highlight those.
Sector ETFs in Focus
Energy – iShares U.S. Oil Equipment & Services ETF (IEZ - Free Report)
Price of energy commodities rose 2.3% sequentially and 2.2% year over year in September.
The energy sector, which includes oil and gas companies, has historically offered upbeat performance in a rising inflationary environment. Such firms beat inflation 74% of the time and delivered an annual real return of 12.9% per year on average, per a research report of Hartford Funds.
The revenues of energy stocks are tied to energy prices, a key component of inflation indices. This time also, rise in oil prices increased inflation globally. And energy ETFs should emerge outperformers in this kind of scenario. IEZ is up 5.2% in the past three months (as of Oct 12, 2023).
Transportation – SPDR S&P Transportation ETF (XTN - Free Report)
Price of transportation rose 0.7% sequentially and 9.1% year over year in September. This shows that high transportation prices are also driving U.S. inflation. Investors thus can play transportation ETF XTN as the all-important holiday season has arrived and the companies within the fund have the ability to pass on higher prices to consumers.
Real Estate – Hoya Capital Housing ETF (HOMZ - Free Report)
Per a research report of Hartford Funds, equity REITs outperformed inflation 66% of the time and posted an average real return of 4.6%. Equity REITs own real-estate assets and may provide a limited inflation hedge via the pass-through of price increases in rental contracts and property prices. Price of shelter ose 0.6% sequentially and 7.2% year over year in September.
Notably, shelter makes up 32.77% of U.S. consumer price index, of which 7.8% is rent and 23.68% is private housing, per data from MacroMicro. Shelter costs rose 0.6% sequentially and 7.2% year over year in September.
Restaurants – AdvisorShares Restaurant ETF (EATZ)
The food-away-from-home index increased 0.4% sequentially and 6% year over year in September. This shows that high food prices in restaurants are also driving U.S. inflation. Investors thus can play restaurant ETF EATZ as the companies within the fund normally have the power to pass on higher prices to consumers amid the holiday season.