Don't Be 'SHY' Or Take Any 'TIP,' Instead Check Out This Inflation ETF

Perhaps the biggest issue facing the economy, and by extension the markets, these days is inflation. New issuer Rareview Capital added to its fund line up in January with an exchange-traded fund tackling inflation head on. Unlike other funds that are equity-based and seek exposure to companies that can benefit from a high inflation, Rareview decided to skip an equity-based product. Let's take a look at the approach and see how it's been doing since the fund's launch. The Rareview Inflation/Deflation ETF kicked off on Jan. 5. After a management fee waiver, the fund sports an 87-basis point expense ratio, meaning a shareholder with $1,000 invested over a calendar year would see fees of $8.70 of that holding period. The fund is actively managed, but operates using a fairly structured approach that looks to work in both inflationary and deflationary environments. Active ETFs Continue to Benefit Investors Reading through the literature for this fund reinforces the idea that ETFs are bringing a democratization of sorts to retail investors. Increasingly, I am seeing language similar to Rareview's, as they describe an approach that's more than providing exposure to a market segment or relying solely on long-only equity exposure to solve a particular problem. FLTN is described as a strategy that looks to outperform the rate of inflation over a business cycle. Once again, this is language usually associated with pitches to institutional investors and that assumes retail investors can afford to broaden their timelines, should be able to resonate with them as well. The Approach Rareview sees two general states in the cycle of the economy, inflation and deflation. Within each of these are several regimes: Inflation Regime 1: Inflation pressures begin to build and the Federal Reserve begins to signal a bias toward tightening. Inflation Regime 2: Inflation rises above target/trend and the Fed is actively tightening. Deflation Regime 3: The Fed overshoots the tightening cycle and the markets react to the end of the tightening cycle. Deflation Regime 4: The Fed starts easing to stimulate the economy out of any potential deflationary spiral/recession. General portfolio allocations for each regime focus on Treasuries with the only difference being inflationary environments call for Treasury Inflation-Protected Securities (TIPs) and deflationary environments focus on regular, or nominal Treasuries. The current portfolio is about 88% Treasuries (not TIPs) and about 10% cash. What I like about this strategy is that is also looks to take advantage of shifts in the yield curve as well as movements in other asset classes as evidenced by current holdings of shares of the United States Oil Fund , a vertical spread and outright long position in options on corn futures expiring in May and some June and December euro-dollar vertical spreads using options on futures, as well. There are also some spreads on what look to be rates options on futures but try as I might I was unable to identify the underlying contract based on the 0E product symbol from the holdings posted on the website. The only thing I found with 0E was a mini European 3.5% fuel oil barges future, but given the strike prices of $99.0625, $98.9375 and the like, these read as a rates contract to me, but I'm not sure which rates at this point, even after searching both Chicago Mercantile Exchange and Intercontinental Exchange products. My Take Overall, I like the approach. The issuer has created a broad signaling framework with the various regimes and allowed itself a lot of flexibility through having a strategic core of Treasuries/TIPs holdings and giving free rein for the managers to act tactically at the margins. As you can see from the chart above, FLTN is outperforming both the iShares TIPs Bond ETF and the iShares 1-3 Year Treasury Bond ETF from the fund's inception through the close of Monday. Also, this strategy of looking to perform over a rate cycle is nice to see. But we have a while to go before declaring this fund an inflation beater. Still, based on these early returns this is one to keep an eye on.

Don't Be 'SHY' Or Take Any 'TIP,' Instead Check Out This Inflation ETF

The Rareview Inflation/Deflation exchange-traded fund was launched in January and so far it appears to perform better than the iShares TIPs Bond ETF and the iShares 1-3 Year Treasury Bond ETF.

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