- AXS Astoria Inflation Sensitive ETF is the top inflation fund of 2022.
- Greg Bassuk of AXS Investments shared how his firm invests with high inflation.
- See how the fund is preparing to tackle persistent inflation in 2023.
It’s hard to imagine a better first year than the one the AXS Astoria Inflation Sensitive ETF (PPI) just had. The inflation-focused fund, which launched on December 29, 2021, is up 1.8% this year, while its benchmark is down 17.2%. That’s good enough to earn the No. 1 spot out of 409 funds in the Morningstar category.
With price growth widely expected to peak next year, cynics may view this performance in light of this year’s multi-decade high inflation and wonder if the fund can have a successful encore in 2023.
However, Greg Bassuk, CEO of AXS Investments, is confident that his firm’s fund can continue to deliver solid returns as inflation remains higher than normal – even if interest rates start to decline.
“The way we look at it is whether or not inflation has peaked, and that’s debatable,” Basuk told Insider recently. “We will continue to see monthly data as we move into 2023.”
Basuk continued: “But what is not debatable is that we are in a period of increased prices. And even if they continue to fall, 2023 will remain a year in which we expect prices to rise on a historical basis.”
Follow this 7-part strategy to beat inflation
The AXS Astoria Inflation Sensitive ETF became one of the fastest-growing exchange-traded funds this year as investors noticed its ability to offset higher prices with relatively low volatility while acting as a “portfolio completion” tool, Bassuk said. In other words, both financial advisors and domestic investors have used it to differentiate themselves from traditional 60-40 portfolios.
Having inflation hedges like commodities and Treasury Inflation-Protected Securities (TIPS) as well as stocks in sectors that actively benefit from higher prices allowed the fund to play defense and offense at the same time, Basuk said.
“Not only does this differentiate this ETF from other investments that investors have to manage their portfolios and their bullish periods, but importantly this combination of securities has also really thrown gas on the fire, in a sense, to the very strong ETF performance,” Basuk said.
When inflation is historically high, Bassuk said the fund focuses on seven investments: TIPS, valuable metals like gold, agricultural goods such as agricultural land and timber, and stocks in energy, financially, industriesand materials branches.
TIPS are a reasonable inflation hedge because their yields rise with prices, Bassuk said, while precious metals and agricultural commodities are real assets that see their value rise with inflation.
Meanwhile, stocks in cyclical sectors such as energy, financials, industrials and materials have outperformed the S&P 500 this year, and oil and gas companies have performed particularly well. All are strong options when inflation is still high but not necessarily rising, Bassuk noted.
Although the one-year PPI ETF has never experienced a period of low inflation, Bassuk said that in such an environment it would be more like other AXS funds and buy stocks and bonds broadly while underestimating commodities and cyclical stocks .
The fund will gravitate toward defensive sectors in a weak inflation environment, Bassuk said, adding that communication services and technology would stand out if investors were willing to take on risk while Health Care and public utility services it would be preferable if the markets were volatile.
As for how the fund will handle peak inflation, Basuk said investments are made based on whether price growth is currently high or low rather than where it might be headed.
“The way we think about it is a little different than most, which is that we’re not so much in the game of trying to figure out, ‘Has inflation peaked or hasn’t it?'” Bassuk said.
Bassuk added: “We’re not making very big immediate changes to the portfolio based on the Fed or the news or one-month inflation data points. We’re looking at it more from a macro perspective.”
That means the AXS Astoria Inflation Sensitive ETF will remain in the seven-part TIPS, precious metals, agricultural and energy, financials, industrials and materials stocks portfolio as inflation remains higher than normal in 2023.