Alpha Architect has launched a multi-asset ETF that seeks to deliver portfolio protection in both inflationary and deflationary environments.
The ETF rotates between asset classes that have historically behaved differently in inflationary and deflationary regimes.
The Alpha Architect High Inflation and Deflation ETF (HIDE US) has been listed on Cboe BZX Exchange with an expense ratio of 0.29%.
The fund utilizes a systematic investment approach to dynamically rotate between three asset classes – intermediate-term US Treasury bonds, real estate, and commodities.
Exposure to the three asset classes will typically be obtained through third-party ETFs, although the fund may also invest directly in individual securities as well as real estate investment trusts (REITs).
The ETF’s allocation amongst the asset classes is driven by a quantitative model, developed in-house by Alpha Architect’s parent company Empirical Finance, which utilizes various momentum and trend-following inputs.
When Alpha Architect’s model indicates ‘buy’ signals for all three asset classes, the ETF will target 50% exposure to intermediate-term US Treasuries and 25% exposure each to real estate and commodities. These target allocations are simply guidance, however, and may be adjusted based on Alpha Architect’s analysis of current market conditions.
Each of the three asset classes has historically behaved differently in inflationary and deflationary regimes. In seeking to provide consistent portfolio protection, the ETF is expected to be primarily invested in real estate and commodities during inflationary periods and in US Treasuries during times of deflation.
During challenging market environments when the outlook for the asset classes is negative or less certain, Alpha Architect may shift up to 100% of the ETF’s assets into defensive securities such as money market funds, US Treasury bills, or other cash equivalents.
The model and the ETF’s asset allocation are updated at least monthly.
Connecticut-based investment adviser Rareview Capital also debuted an ETF this year that protects investors from both inflationary and deflationary environments. The Rareview Inflation/Deflation ETF (FLTN US) seeks a rate of return that exceeds the rate of inflation over a full business cycle which Rareview estimates to last for approximately 60 months on average.