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Get Four
|  | OCTOBER 24, 2005
 FUND INVESTOR By Palash R. Ghosh ETFs, the Inflation FighterExchange-traded funds in certain sectors may help your portfolio at a time when prices are rising. Among the sectors: energy, utilities, and health careSigns of inflation have apparently returned to the U.S. economy after an absence of nearly 15 years. Sam Stovall, chief investment strategist at Standard & Poor's, points to the consumer price index (CPI), which rose 1.2% during September and 4.7% on a year-over-year basis -- the highest increase since June, 1991. The rise was driven primarily "by stubbornly high energy prices." The Labor Dept. said earlier this week that wholesale prices increased 1.9% last month. As the Federal Reserve seeks to curb inflation by exercising changes in the Fed funds rate, some mutual-fund and stock investors may seek to move their assets into sectors that have historically performed well during inflationary periods (see BW Online, 10/20/05, "Investments That Fight Infation Fears"). As a tactical play, exchange-traded funds (ETFs) focused on these sectors may provide some relief against rising consumer prices. WATCH THE WEIGHT. According to Stovall's research, which examined eight periods of "inflation acceleration" between June, 1972 and September, 2005, energy, health care, materials, and utilities recorded better average price gains and frequencies of outperformance than the consumer-discretionary, financial, industrial, and information-technology sectors. Gold and precious-metals shares have also outperformed during such periods (see BW Online, 10/21/05, "S&P Is Getting Defensive"). Still, investors should be aware that equity-sector ETFs, even those that are focused on more defensive sectors rather than cyclical ones, can court significant risk if overweighted because of the higher volatility and concentration associated with them. Instead, sector ETFs might be applied more sparingly to a portfolio of stocks and bonds, depending on an investor's overall asset and allocation. The following table shows a sampling of ETFs that invest in sectors of the market most resistant to inflationary pressures. (Total returns include reinvested dividends and are as of Sept. 30, 2005.)
 Ghosh is a reporter for Standard & Poor's Fund Advisor All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.
BW MALL
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