Morningstar, a provider of investment research and analytics, has launched the Morningstar US Real Asset Index, a diversified index portfolio of liquid assets that traditionally provide a hedge against inflation.
Morningstar’s new US Real Asset Index could help investors combat the inflationary effects of ultra-loose monetary policies such as quantitative easing (essentially money printing).
The index, which includes exposure to Treasury inflation-protected securities (TIPS), real estate investment trusts (REITs) and commodity-based stocks and futures, could help investors control their exposure to inflation.
It’s often easy to overlook inflation, especially as it hasn’t been at alarming levels recently (at least not in the US, the market which this new index specifically addresses). Yet historically, inflation has reduced purchasing power quite significantly over longer time periods. Thus it is wise for investors to include assets in their portfolios that provide some protection against unexpected inflation.
This is particularly true today as rising commodity prices, ultra-loose monetary policies (such as quantitative easing), and ever more frequent episodes of social and political unrest in resource-rich countries threaten to stoke inflation. Consequently, this new index, which is designed to provide attractive inflation-adjusted returns, could prove popular with investors, especially if it’s adopted by one of the major providers of exchange-traded funds (ETFs).
According to Sanjay Arya, senior vice president of Morningstar Indexes, “The Morningstar US Real Asset Index will allow investors to better benchmark their real return investments and gain a deeper understanding of the benefits of adding a broad spectrum of inflation-hedged assets to their portfolios.”
The index has been constructed to consist of liquid assets that can be accessed easily in public markets. Currently, the index holds approximately 40% in TIPS, 30% in commodities futures, 15% in REITs, and 15% in commodity stocks, including both companies involved with resource extraction and master limited partnerships (MLPs) engaged in resource transportation and processing. The index will be reconstituted semi-annually.
Morningstar has been active in the index space since 2002 when it introduced a series of style indices. Since then, the company’s index division (Morningstar Indexes) has rolled out a broad range of traditional beta global equity, fixed income, and commodity indices that are also combined to form an asset allocation index series. Morningstar also offers a series of factor-based and active equity indices.
Currently, 32 ETFs and one ETN track Morningstar indices from providers such as iShares, Market Vectors, FlexShares, Horizons and First Asset.