Categories: Stock Market

Hedge Against High Inflation With Real Assets & DFRA

While inflation in the U.S. has come down considerably from its peak of 9.1% in June, consumer prices were still 6% higher at the end of February than they were a year ago. That’s still significantly up from the 2% the Federal Reserve would like inflation to be. So, the Fed has indicated that it will continue raising interest rates until it reaches that goal.

A new report from LendingClub shows that high inflation is taking its toll on American consumers, with 62% of adults in the U.S. living paycheck to paycheck as of February. This is a slight increase from 60% in January. Plus, 48% of high-income consumers in the U.S. live paycheck to paycheck in February. The report also found that more people have picked up a side hustle to make ends meet.

“While consumers have adjusted to inflationary pressures by budgeting and spending less, many have turned to supplemental income with a side job or alternative income sources to improve their financial standing,” said Anuj Nayar, financial health officer at LendingClub.

See more: “Latest Rate Hike Serves as High Yield Tailwind”

Real Assets as an Inflation Hedge

To combat persistently high consumer prices, many investors are allocating to real assets. Not only do the equity securities of companies owning and operating REITs, toll roads, and cell towers impact our lives every day, but end user demand for these essential goods and services also tends to be relatively sustainable and inelastic throughout a cycle.

Investors looking to invest in real assets as a hedge against inflation may want to look into the Donoghue Forlines Yield Enhanced Real Asset ETF (DFRA), which seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FCF Yield Enhanced Real Asset Index, an investment strategy developed by FCF Advisors subsidiary FCF Indexes.

The fund invests primarily in U.S.-listed real asset companies of all sizes. This includes companies related to real estate, infrastructure, commodities, and natural resources. Backed by tangible, hard assets, the companies targeted in DFRA tend to generate returns linked to inflation as many of their cash flows are tied to contractual inflation escalators.

DFRA also provides a hedge against inflation, as it looks to provide better risk-adjusted returns than broad market equities in periods of positive inflation surprises. It also seeks to generate a higher dividend yield than broad market equities and the market cap-weighted real asset equities universe, with the potential of continuous dividend payments over the long term.

The fund applies FCF Advisors’ Free Cash Flow Quality Factor Model to seek alpha generation over a market cap-weighted real asset equity universe.

For more news, information, and analysis, visit the Free Cash Flow Channel.