ETFs to Profit from Eurozone Inflation

We outline the merits of using a passive investment approach to gain access to inflation-linked bonds and provide details of two top rated exchange-traded funds

Jose Garcia-Zarate 21 March, 2017 | 1:23PM

Inflation in the eurozone is rearing its head. Any comprehensive inflation-hedging strategy should probably combine multiple asset classes. However, inflation-linked bonds, whose coupons are made up of a fixed rate plus a variable top-up that covers for moves in consumer prices, remain a favoured first line of defence.

The Inflation Outlook

Inflation in the eurozone has spiked markedly in the space of a few months. The harmonised index of consumer prices, or HICP, hit 2.0% year over year in February, its highest level since January 2013. Only six months earlier it was just managing to keep afloat at zero.

Annual HICP calculations have been inflated by “base effects” in the energy price component of the index. Put differently, oil prices–currently stable around USD 55 per barrel–are much higher than a year earlier. The noise generated by the base effects is expected to wear off soon, and eurozone HICP may drift down and settle at slightly lower levels.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
iShares € Inflat Lnkd GovtBd ETF EUR Acc223.04 EUR0.08
iShares € Inflat Lnkd GovtBd ETF EUR Acc GBP185.61 GBP0.14

About Author

Jose Garcia-Zarate

Jose Garcia-Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe

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