5 ASX ETFs to combat inflation: fund manager

The fund manager BetaShares believes certain ETFs can provide resilience.

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Key points

  • BetaShares suggests five ETFs that it believes can protect investors against inflation
  • Commodities are one area of potential protection
  • The global banking sector could benefit from rising interest rates

The fund management business BetaShares has come out with some suggestions for exchange-traded funds (ETFs) that could protect against inflation.

BetaShares chief economist David Bassanese notes there has been a shift in global interest rate expectations since last year, with interest rates in the United States now expected to reach 1.9% by the end of the year and 2.8% by the end of 2023.

With global inflation spurred on by the Russian invasion of Ukraine, Mr Bassanese has pointed to some ASX ETFs in the commodities sector that may be of interest to investors in this inflationary environment.

Commodity ETFs

The four ETFs that BetaShares refer to relate to global energy, gold and food producers, and Australian resource companies.

They include:

  • BetaShares Global Energy Companies ETF (ASX: FUEL)
  • BetaShares Australian Resources Sector ETF (ASX: QRE)
  • BetaShares Global Gold Miners ETF (ASX: MNRS)
  • BetaShares Global Agriculture Companies ETF (ASX: FOOD)

Mr Bassanese said these ETFs had been performing thanks to the strength of oil, gold, food, and iron ore prices. More broadly, many commodity shares were performing well.

BetaShares said that valuations were "still attractive" when looking at price to earnings (p/e) ratios compared to long-run averages.

However, commodities aren't the only industry that BetaShares said could benefit in the current environment.

Global banking ETF

The other high-performance area was the global banking sector.

Mr Bassanese said that the banking sector "tended to do relatively well in an environment of rising interest rates", referring to the BetaShares Global Banks ETF (ASX: BNKS) for these inflationary times.

The BetaShares chief economist said:

This is because rising rates tend to be associated with stronger profits margins as medium-term bank lending rates tend to widen by more than the cost of short-term funding costs. Rising credit demand due to strong economic growth also tends to be supportive of global banks.

Mr Bassanese wrote that the same attractive valuation argument was also broadly held for the financial sector.

Australian interest rates to increase?

Mr Bassanese said that he expected Australian interest rates to rise by 15 basis points next week, which is early May 2022. He said it made sense for the RBA to "start off slow", with another 25 basis point increase expected in June.

Interest rates are being increased by several central banks around the world, including the US Federal Reserve.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended BetaShares Global Banks ETF - Currency Hedged and BetaShares Global Energy Companies ETF - Currency Hedged. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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