3 ETFs I’m Holding to Beat High Inflation

In this period of high inflation, I’m holding ETFs like iShares S&P/TSX 60 Index Fund (TSX:XIU).

| More on:

Inflation is running hot this year. A week ago, StatCan released the official inflation report for May, which showed a 7.7% increase in the price level. The CPI increase was well ahead of estimates, which called for a 7.3% rise in prices.

In this environment, Canadians are feeling the squeeze. Salaries aren’t going up as fast as prices, and people are having to cut corners to make ends meet.

It’s a tough time, for sure. But there is a way to protect your savings. By investing in diversified index funds, you enjoy a slice of the profits earned by companies raising prices this year. This doesn’t guarantee you’ll get great returns. But it gives you a decent shot at a return that exceeds what you’ll earn in a bank account.

In this article, I will explore three exchange-traded funds (ETFs) I’m buying this year in order to combat the effects of high inflation.

Large-cap TSX stocks

iShares S&P/TSX 60 Index Fund (TSX:XIU) is a Canadian ETF that holds the largest 60 Canadian stocks by market cap. I bought this ETF fairly early in my investing career and never looked back. With 60 stocks, it has plenty of diversification. It also has a low fee (0.16%) and high liquidity. Perhaps more importantly, it has a lot of stocks in it that serve as inflation hedges.

You may have heard that the price of oil is rising this year. That’s true, and oil stocks are among the few categories of equities that are outperforming. Since Canada has a lot of energy companies, you get ample exposure to the sector via XIU. It’s a great fund for investors looking for inflation protection.

American stocks

Vanguard S&P 500 Index Fund (TSX:VFV)(NYSE:VOO) is a fund of U.S. stocks. There is a Canadian version of the fund, VFV, which has a higher fee than the U.S. version but better tax treatment.

The U.S. stock market doesn’t have as many direct “high-inflation-winner” plays as the Canadian stock market does. It does, however, have a lot of tech stocks that have been beaten down below fair value. Many top U.S. tech stocks now trade at market prices below the value of their future cash flows in a DCF model, assuming 0% growth. Such stocks have fallen this year, of course, but their high growth and cheap valuations make them worthy picks for the future.

Banks

Last but not least, we have Vanguard Financials Index Fund (NYSE:VFH). This is an ETF that invests exclusively in financial stocks. Banks don’t directly profit off of high inflation, but they can profit off of interest rate hikes.

When interest rates rise in tandem across the yield curve, banks see their profit margins increase. It isn’t as simple as saying that when interest rates go up, bank profits go up: the interest rates need to go up on the long end of the curve as well as the short end. But in the long run, banks are among the few categories of equities that are at least not damaged by high interest rates.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has positions in Vanguard S&P 500 ETF, Vanguard Financial ETF and iSHARES SP TSX 60 INDEX FUND. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

monthly desk calendar
Dividend Stocks

Monthly Income: Top Dividend Stocks to Buy in November

Here are two of the best monthly dividend stocks in Canada you can buy in November 2024 and hold for…

Read more »

hand stacks coins
Investing

A Top TSX Stock to Buy Now for Real Wealth Later

Intact Financial (TSX:IFC) stock is a fantastic dividend-growth play for the next 15 years and beyond.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, November 14

The U.S. wholesale inflation data and Fed chair Jerome Powell’s remarks about the economy will remain on TSX investors’ radar…

Read more »

Man data analyze
Tech Stocks

3 Reasons Celestica Stock Is a Screaming Buy Now

These three reasons make Celestica stock a screaming buy for long-term investors.

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »