May 2022 may or may not be the month that the stock market rebound after one of the worst starts to a year in a very long time. Undoubtedly, savers will continue to get hurt by surging inflation, and stock investors will continue to see their portfolios down in the gutter big time.
Undoubtedly, nobody wants to be in this position. Investors and savers both find themselves stuck between a rock and a hard place. Fortunately, there are secure ETFs on the TSX Index to check out. They can improve your odds of building a real return in a year that everybody may be set back a bit. Indeed, those close to retirement could be set back a year or more if they let inflation eat away at their hard-earned nest egg.
That’s why I’m a huge fan of one-stop-shop ETFs that may be key to dodging and weaving through inflationary pressures.
Without further ado, this piece will have a closer look at two high-yield plays that can help offset the hit from inflation. With the Bank of Canada ready to raise rates, there is hope that inflation could roll over in the months to come. Still, inflation probably should have never been allowed to surpass 6%. If it surprises to the upside in the 7-8% range, things could get ugly for savers and conservative investors heavy in bonds and GICs.
Staying ahead of inflation is hard — more so as a saver
While the following equity ETFs are technically “risky” assets, I think their lower betas and distributions make them a fine middle ground for those who need a jolt to stay ahead of these horrible price increases. Some bulls may think inflation will cool on its own without big rate hikes. But arguably, it’s far better to be prepared for more inflation, so you’re not left feeling the full force after yet another year of price increases. Indeed, the future seems grim for savers. But it doesn’t have to be with ETFs like BMO Equal Weight Banks ETF (TSX:ZEB) and BMO Covered Call Utilities ETF (TSX:ZWU).
I think both ETFs are great to buy together. ZEB is an equal mix of the Big Six Canadian banks, which seem a tad oversold at this juncture. They could rally once the TSX experiences relief. In the meantime, ZEB sports a 3.5% yield. That’s not quite as high as inflation. But it can cut it down from 6.7% to 3.2%. If inflation pulls back in May to the 5% range, ZEB could help drag inflation to the more manageable 2% range. Indeed, many of us can stomach a 2% hit from inflation. It’s the rate we’re used to! Though ZEB’s distribution won’t leave you with a real return, capital gains could, especially as rates rise (a net positive for the banks).
For a bigger, safer income boost, ZWU is a great play. Utility stocks are defensive, but the covered call aspect makes the ETF even more defensive. The ETF boasts a 7.4% yield. That’s enough to make a real return this year, assuming inflation doesn’t surge to 7.5% or higher.
The bottom line
While ZWU has been stuck in a rut over the pullback in various utility stocks, I think the dip is buyable. So, for a good mix of offence and defence, ZWU and ZEB seem like the most intriguing inflation fighters out there.