• ETF Insights

    Iceflation and melting wealth?

    Martijn Rozemuller, CEO – Europe
     

    Thinking back to my childhood, I remember buying an ice cream for 50 cents. Forty-five years later, the same single-scoop in a cornet would cost about 3 euros, roughly six times as much. That’s what you call inflation.

    With vaccination programmes accelerating, Europe’s economies are rebounding sharply from the worst recession in decades. The Covid-19 crisis is gradually receding and economic indicators are switching to green. As they do so, though, price rises are causing alarm.

    High inflation is a worry for economists and financial markets because it erodes the value of money, leading to interest rate rises. For those of you interested in data, eurozone inflation rose to 2% in May, the first time it has overshot the European Central Bank’s target in two years.

    But like other central banks around the world, the ECB reckons the inflation uplift is temporary. The main driver was a surge in energy prices, which doesn’t indicate inflation is becoming rooted throughout the economy, driving up necessities like food and even ice cream. Even so, plenty of commentators and smart investors are wary.

    So, it might make sense for investors to protect their portfolios against the risk of an inflationary spike. If signs emerge that prices are spiralling – for instance with workers asking for higher wages to cover a rising cost of living – then they could harm bond prices and slow the rise in equities.

    Green tech and gold

    Given today’s drive to green the economy, a topical way to do so is owning mining companies. Demand for metals like copper is rocketing with the rise in renewables technology needed to decarbonise economies by 20501. Green technology needs copper and metals such as cobalt and nickel, yet supply is constrained: a sure fire recipe for higher prices. The VanEck Vectors Global Mining UCITS ETF offers exposure to metals and mining companies involved in the extraction of these metals.

    Performance of the VanEck Vectors Global Mining UCITS ETF during the last 12 months

    Performance of the VanEck Vectors Global Mining UCITS ETF

    Source: VanEck. Data for the period 12/06/2020 - 11/06/2021. Past performance is not a reliable indicator for future performance.

    Gold is a more classic inflation hedge. When the value of money is eroded, gold tends to hold its value because supply is limited, although the price can be volatile. Our Gold Miners ETF gives you exposure to gold, with the added value of doing so through mining companies that can grow their profits due to management actions.

    Real estate’s merits

    Finally, real estate can work well as a hedge. When inflation rises, so do property values and the amount a landlord can charge for rent. You can guard against inflation through real estate in our Global Real Estate ETF.

    Unfortunately, we don’t yet have an ice cream ETF, or that too might deliver an inflation hedge as children venture out again. Even so, one or a combination of these three ETFs should give anyone concerned about rising prices some protection as the world reopens.

    1Source: Bloomberg.

    VanEck Asset Management B.V., the management company of VanEck Vectors™ Global Mining UCITS ETF (the "Fund"), a sub-fund of VanEck Vectors™ UCITS ETFs plc, is a UCITS management company incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). The Fund is registered with the Central Bank of Ireland and tracks an equity index. The value of the ETF assets may fluctuate heavily as a result of the investment strategy. If the underlying index falls in value, the ETF will also lose value.

    Investors must read the sales prospectus and key investor information before investing in a fund. These are available in English and the KIIDs in certain other languages as applicable and can be obtained free of charge at www.vaneck.com, from the local information agent or from the Management Company.

    Performance quoted represents past performance. Current performance may be lower or higher than average annual returns shown. Discrete performance shows 12 month performance to the most recent Quarter end for each of the last 5yrs where available. E.g. '1st year' shows the most recent of these 12-month periods and '2nd year' shows the previous 12 month period and so on.

    Performance data for the Irish domiciled ETFs is displayed on a Net Asset Value basis, in Base Currency terms, with net income reinvested, net of fees. Brokerage or transaction fees will apply.


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