Wall Street Is Set to Make Big Bucks off Inflation

A flurry of new exchange traded funds (ETFs) is hitting the market…

In fact, several of these ETFs came out over the past month alone.

Wall Street is pitching them as investors’ shields against our biggest threat right now – inflation. And naturally, in return for that alleged protection, it’s asking for a hefty fee.

But folks, you don’t need the latest nonsense that Wall Street is peddling. In today’s essay, I’ll show you how to build your own inflation-fighting portfolio for a quarter of the cost…

Right now, a couple dozen ETFs include the word “inflation” in their names. And the government’s benchmark for inflation – the Consumer Price Index (“CPI”) – is at 7% today.

That means these ETFs would need to return 7% per year just to keep pace with inflation.

But the problem is… According to my calculations based on the Bloomberg data, only 17% of the ETFs tasked with beating inflation actually did that in 2021.

The outperforming ETFs targeted the real estate and energy sectors, along with some exposure to gold and industrial metals. The underperforming ones invested in inflation-protected bond-type funds… Those ETFs struggled as bond prices fell at the end of 2021.

Importantly, Wall Street labels these ETFs as “thematic.” That means the issuers can charge more for them than typical sector-based ETFs… And they do.

Issuers can charge as much as 0.75% for these ETFs… But on average, the expense ratio is around 0.5%. In comparison, the typical sector-based ETF can be as low as 0.13%.

And Wall Street’s rush to capitalize on this trend is just getting started… According to Bloomberg, the total number of ETFs in this category could double in 2022.

But if only 17% of the existing ETFs are doing their jobs, why do investors need more?

The answer should be obvious… They don’t.

Plain and simple, Wall Street is looking to make big bucks off the inflation narrative. Do not fall victim to the marketing magic of these alleged inflation shields.

You’re much better off focusing on the strongest sectors today. And finding them is easier than you think…

It’s one of the special features within our Power Gauge system.

You see, the Power Gauge initially graded more than 4,000 individual stocks. The 20-factor model puts an emphasis on fundamentals – like price-to-sales ratio, free cash flow, and price to book value, and more. It also looks at several technical factors as well – like price strength and our “Chaikin Money Flow” indicator.

The Power Gauge was so successful that we received requests to rate equity ETFs as their popularity started growing… And since ETFs are just a portfolio of stocks, we made it happen by using the ratings of the stocks inside the ETFs.

The Power Gauge rates four sectors that would benefit from an inflationary backdrop as “bullish” at the moment. We’ll focus on one today – the energy sector…

The Energy Select Sector SPDR Fund (XLE) tracks a market-cap-weighted index of the U.S. energy companies in the S&P 500. It has about $32 billion in assets under management. And oil giants ExxonMobil (XOM) and Chevron (CVX) are the biggest of its roughly 20 holdings.

The Power Gauge rates this ETF as “very bullish” today. It comes with a dividend yield of more than 3.5%. And importantly, its expense ratio is only 0.13%… That’s about 25% of the typical fee in one of Wall Street’s thematic, inflation-fighting ETFs right now.

The energy sector is a classic inflation hedge. And XLE is outperforming the S&P 500 in a big way… It’s up roughly 17% so far in 2022, while the S&P 500 is down around 4%. And of course, that return is also beating the current rate of inflation.

So as you can see, you don’t really need a fancy, new ETF to fight inflation… You can simply turn to sector-based ETFs – and do it for much cheaper.

The key is picking the bullish ones… And that’s where our Power Gauge can help.

Good investing,

Pete Carmasino

Editor’s note: Marc Chaikin spent his career helping companies make money before retiring in 2000. But then, after the 2008 market crash, he made a radical decision… He came out of retirement to prevent ordinary folks from “getting fleeced” by Wall Street. And now, you can give yourself a huge advantage using Marc’s Power Gauge system. Learn more here.

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