If you're seeking a new exchange-traded fund as an inflation/deflation play to consider, then Alpha Architect -- a rare white-label issuer -- might have what you're looking for: HIDE.
HIDE is what is known as a fund-of-funds product, meaning it invests in securities as well as other ETFs to achieve its investment strategy goals. Alpha launched on Nov. 11 the fund, whose full name is the Alpha Architect Inflation and Deflation ETF (HIDE) . What's interesting about Alpha, is it maintains its proprietary suite of ETFs without any apparent conflict of interest with or outright theft of fund sponsor client intellectual property.
The fund itself sports a 29-basis point (bps) expense ratio meaning a shareholder with $1,000 invested over a calendar year would pay $2.90 in fees over that period. One note about the expense ratio is that the issuer has agreed to reimburse the fund for any acquired fund expenses until November 15, 2025. Without this reimbursement, the fund expense ratio would currently be 43 bps. OK, on to the strategy.
This ETF is actively managed, so there's no index methodology to review but, the fund prospectus has everything we need to understand the strategy. The issuer has restricted the scope of the fund to Intermediate-Term U.S. Treasury bonds, real estate, and commodities. It employs a proprietary model to determine asset allocations and when a buy signal is present across all asset classes, will allocate half to Treasuries, a quarter to real estate, and a quarter to commodities. Signals are determined through what is described as a number of price trend-following models including, but not limited to a rolling 12-month average signal model and a 12-month time series momentum signal model. In a scenario where neither Real Estate nor Commodities are indicating a favorable environment, the fund will maintain 100% exposure to cash and/or cash equivalents in the form of Treasury bills or money market ETFs.
Once the models have indicated desired asset allocations the portfolio manager then goes about determining which ETF should fill that particular bucket. The prospectus outlines that the portfolio manager has discretion in making final fund selections. Further, both Alpha Architect and non-Alpha Architect funds are eligible for inclusion.
Looking at current fund holdings, it seems like Real Estate "does not spark joy" for the issuer's models as the fund is roughly 76% allocated to February 2023 maturity T-bills and just under 24% allocation to commodities. The commodity exposure comes in the form of the GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB) . This fund, as indicated, provides broad commodity exposure including energy (33%), grains (22%), gold and silver (19%), industrial metals (14%), cattle & hogs (6%), and finally, sugar, cotton and coffee (6%). These allocations are from my reviewing the current holdings file and using the "Market/Notional Value" column to calculate these percentages.
Wrap It Up
There have been a number of asset allocation strategy ETFs that have launched this year, and increasingly they are being positioned as remedies for the current inflationary environment. What I like about this fund is the mix of high-level signaling from the asset allocation model and active fund selection on the part of the portfolio manager. We have yet to see if this inflation cycle will settle down with or without any major pain. If the Fed can manufacture a landing on the softer side, I think this fund will do well for investors through this part of the economic cycle. Let's see what the next few Fed meeting bring and in the meantime add this to your watchlist for sure.