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Feb. 11, 2021, 3:36 p.m. EST

ETF Wrap: Mortal combat? Nah, just inflation forecasts

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By Andrea Riquier

What just happened?

You know that thing they do on soap operas? Everyone’s greatest and most-frequently professed wish is “getting back to normal” now that the trial is over. The evil stepmother is vanquished. The long-lost, third husband is persuaded to go away. But it never happens, because as soon as that’s taken care of, another plot twist always emerges.

Granted, if you are reading “ETF Wrap” you may not be bingeing episodes of “ General Hospital .” But you get the idea. Many of us still are processing the shock and awe of last spring’s coronavirus crisis and market meltdown, not to mention the unsettling ripples from November’s elections.

But as MarketWatch has reported, frequently, there’s an argument to be made that markets, investors, and advisers haven’t totally gotten over the 2008 financial crisis .

How, then, do we think about ongoing predictions of “normalization?” An investing community that hasn’t seen rates or inflation go up for more than a handful of months in over a decade might be forgiven for being somewhat skeptical that this time it’s for real.

I ndustrials /zigman2/quotes/202026558/composite XLI -0.15% and materials /zigman2/quotes/204467551/composite XLB +0.20% sector ETFs have gained roughly 1.5% in the year to date, while technology /zigman2/quotes/207444675/composite XLK +0.61% has jumped nearly 5% and communication services /zigman2/quotes/204079482/composite XLC -2.03% has climbed 7.6%, a sign of the continuation of the work-from-home trade. Meanwhile, c ommunity bank ETFs popped late last week on expectations of reflation, then slid again the next day. The 10-year U.S. Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.18% yield was cruising toward the key 1.20% mark, until the January CPI print missed expectations, then slipped nearly 3 basis points.

ETF Wrap will take a break next week, and see you back here on February 25 to consider inflation, reflation, normalization, and much more. Happy (hopefully non-virus-y) Valentine’s Day!

IVOL, You-VOL, We all VOL?

As investors start to jockey for inflation positioning, one ETF is grabbing attention.

The Quadratic Interest Rate Volatility and Inflation /zigman2/quotes/212340916/composite IVOL +0.35% ETF has picked up $347 million in the 12 months ending January 29, 2021, according to a recent analysis from CFRA. That lags some of the inflows to the bigger inflation-protection funds, like the $1.13 billion into iShares’ TIPS Bond ETF /zigman2/quotes/200600110/composite TIP +0.22% , even as IVOL has vastly outperformed many of its peers.

IVOL lets investors hedge against fixed-income volatility, while also offering a hedge against stock-market shocks and inflation with exposure to Treasurys, rather than corporate debt.

As Nancy Davis, IVOL’s founder, has told MarketWatch in the past , the ETF is intended to “hedge against corrections in equity and real estate as the prices of equities and properties tend to fall during times of increased fixed-income volatility.”

CFRA’s analysis of the 12 months ending in January show IVOL had a total return of 15.6%, while the best-performing vanilla TIPS fund, the SPDR Portfolio TIPS ETF, /zigman2/quotes/203715485/composite SPIP +0.17% gained 9.7%.

That’s in large part because IVOL sailed through the coronavirus crisis volatility : as CFRA notes, “a more active approach to managing inflation proved fruitful for IVOL.”

It’s worth noting that a sizable chunk of the actively managed ETF universe is bond funds , as investors seem to look for, and find, more expertise in that asset class than in stocks.

Exchange-traded sundries

  • How’s “Infrastructure Year” going? As ETF Wrap noted a few weeks ago , 2021 kicked off with a friendly bet between two deans of the ETF world. What’s the best ETF to ride a Blue Wave of stimulative spending? ETF Trends’ Dave Nadig suggested the FlexShares STOXX Global Broad Infrastructure Index Fund /zigman2/quotes/201174234/composite NFRA -0.24% , while CFRA’s Todd Rosenbluth likes Global X U.S. Infrastructure Development ETF /zigman2/quotes/200238288/composite PAVE -0.31% . Admittedly, it’s early, but PAVE is up about 5.1% for the year to date, while NFRA has eked out a 2.1% gain.

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