Investors are looking for assets with inflation-fighting properties, and on that front, there are scores of exchange traded funds to consider.
However, not all ETFs with inflation protection credentials are created equal, and some of the newer members of this fray are worth considering. Take the case of the Goldman Sachs Future Real Estate and Infrastructure Equity ETF (GREI).
GREI turns a year old next month, and true to its name, it provides access to both infrastructure and real estate stocks, among others. Alone, either infrastructure or real estate investment trusts offer investors inflation-fighting benefits. Combined, that potency can grow.
Focusing on GREI’s infrastructure exposure, that investment theme was shuffled back following passage of the bipartisan infrastructure package last year, but amid persistent inflation, GREI’s infrastructure allocations are as pertinent as ever.
“Infrastructure assets, on average, are also less sensitive to inflation. Even so, not all assets are created equally. The current environment may aid infrastructure businesses with inflation-linked pricing, inelastic demand and stable cost structures, while adversely affecting those that don’t hold such attributes,” according to Goldman Sachs Asset Management (GSAM).
GREI is relevant today for other reasons that newer investors may not yet be hip to, including infrastructure’s status as a recession and rising rates buffer. Add to that, the Goldman Sachs ETF has more of a growth feel to it than old guard funds in this category, which could be an attractive trait for long-term investors.
“As rates continue to rise and economic growth slows, we think more attractive entry points for infrastructure asset purchases could emerge in traditional assets such as transportation and water as well as in the infrastructure assets of the future, including digital and energy transition infrastructure,” added GSAM.
Of course, investors shouldn’t gloss over real estate, which accounts for 51.1% of GREI’s weight. That sector has a long history of inflation protection. Importantly, GREI’s real estate holdings are fundamentally sound, indicating potentially limited vulnerability in a recession.
“Real estate has historically provided a strong inflation hedge since rental rates typically rise in inflationary environments, but rising interest rates and the looming threat of recession represent counterbalancing concerns, heightening the importance of the specific characteristics and operating performance of each asset,” concluded GSAM.
GREI is actively managed so it can avoid trouble spots while potentially positioning investors for superior income and value opportunities.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.