It goes without explaining at this point, that advisors and investors are keeping an extremely close eye on the trajectory of the Federal Reserve’s ongoing fight against inflation. As of now, the battle certainly seems far from over. Fortunately, tools such as bond ladder ETFs can help portfolios maintain their course and mitigate the brunt of inflation.
February’s CPI report showed that consumer price growth rose 0.3% from January and 2.4% from last year’s numbers, which was relatively aligned with analyst expectations. For many analysts, this report also signified that inflation will continue to be sticky.
(*It’s important to note that February’s report was based on data prior to the the geopolitical upheaval now occurring in the Middle East. With sectors like the oil industry seeing significant price spikes, it’s not unfeasible to expect the consumer prices to stay higher down the line.)
Be it short- or long-term, higher inflation can make it more difficult for investors to stay on track of their financial goals. Bond ladder ETFs can help to weather such market storms by offering both a steady income stream and inflation protection.
Distributing Ladder ETFs Offer a Path to Steady Bond Income
For example, look no further than the distributing ladder ETFs from Northern Trust Asset Management. Within this suite of funds are a collection of bond ladder ETFs that offer distinct exposure to U.S. Treasury Inflation Protected Securities (TIPS), which can provide both income and inflation protection. TIPS generate income by increasing their value based upon the CPI. This helps investors access a consistent inflation hedge, allowing them to stay on track and move towards their goals.
One such fund is the Northern Trust 2030 Inflation-Linked Distributing Ladder ETF (TIPA). TIPA constructs its laddered portfolio so that each rung represents a calendar year between 2025 and 2030. Inside each of these rungs is a selection of TIPS that hit maturity during that specified year.
The even allocation of the rungs also allow for a potentially more even path to income. The fund provides principal on an annual basis, unlike other laddered funds that tend to reinvest it into later rungs.
This overall strategy gives TIPA an approachable use case for those looking to manage their financial goals in the wake of stubborn inflation. The fund’s straightforward laddered portfolio and inflation-adjusted income can provide a steady means to manage recurring expenses and move closer to those long-term goals, even in an unsteady macroeconomic environment.
Originally published on ETF Trends
For more news, information, and strategy, visit the Bond Ladders Content Hub.
Disclosures:
ETF investing involves risk, and principal loss is possible. Shares of any ETF are bought and sold at market price (not NAV). They are not individually redeemed from the ETF. Brokerage commissions will reduce returns. The net asset value of the Northern Trust ETFs will decline over time as income payments are made to shareholders. Individual bonds carry an obligation to fully return principal to investors at maturity, however ETFs have no such obligation.
Before investing, carefully consider the investment objectives, risks, charges, and expenses. This and other information is in the prospectus and a summary prospectus, copies of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest.
Northern Funds Distributors, LLC, distributor. Northern Funds Distributors, LLC and FlexShares are not affiliated with Northern Trust.
All investments are subject to investment risk, including the possible loss of principal amount invested. Investments do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Not FDIC insured | May lose value | No bank guarantee
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