Inflation ETF Posts Gains as March CPI Jumps to 3.3%

An inflation ETF designed to weather rising prices is drawing fresh attention after consumer inflation surged to 3.3% in March. This was the highest level in nearly two years, driven almost entirely by a record 21.2% monthly jump in gasoline prices.

Key Takeaways:

• March inflation jumped to 3.3% as gasoline prices surged 21.2% monthly due to Iran war disruptions.
• FCPI returned 26.63% over one year by targeting companies with pricing power and exposure to inflation-sensitive sectors.
• Advisors are showing increased interest in inflation protection strategies as energy prices climb.

The Fidelity Stocks for Inflation ETF (FCPI) has posted a one-year return of 26.63% and a one-month return of 3.36%, according to ETF Database. The fund’s strategy of targeting companies with pricing power and exposure to materials and energy sectors has positioned it to benefit as energy costs climb, with assets reaching $258.2 million.

The March Consumer Price Index report showed the sharpest monthly increase since 2022. This includes energy prices rising 10.9% for the month, according to the Bureau of Labor Statistics. The spike followed the Iran war’s disruption of oil shipments through the Strait of Hormuz, which handles roughly a fifth of global oil supply.

Core inflation, which excludes food and energy, rose more modestly to 2.6% from 2.5% in February, according to the BLS data. But economists warned that sustained energy price pressure could eventually spread to other goods and services through transportation and manufacturing costs.

See more: Consumer Price Index: Inflation at 3.3% in March

FCPI uses a rules-based approach to identify large- and mid-cap U.S. companies with attractive valuations, high-quality profiles, and positive momentum signals, according to Fidelity. The fund emphasizes industries that historically outperform during inflationary periods.

Inflation Strategy Targets Multiple Factors

The fund’s portfolio tilted 29.05% toward information technology (IT) as of December 31. This was followed by 14.68% in health care, 8.2% in materials, and 7.54% in energy, according to the fund’s factsheet. Technology companies with pricing power can help businesses automate away rising costs, while materials and energy firms benefit directly from commodity price increases.

Top holdings include Nvidia Corp. (NVDA) at 5.76%, Apple Inc. (AAPL) at 5.17%, and APA Corp. (APA) at 4.46%, according to ETF Database. The fund holds 102 total positions.

The inflation backdrop that has helped drive FCPI’s performance also complicates the Federal Reserve’s policy decisions. The central bank has held interest rates steady in the 3.50%-3.75% range. It is also widely expected that it will keep them unchanged at its April 29 meeting, according to Morningstar.

Advisor interest in inflation protection has surged alongside rising oil prices, according to John Davi, founder, CEO and CIO of Astoria Portfolio Advisors. He told VettaFi at the recent Exchange conference that he had more meetings this year than ever before. He further noted that most were with advisors asking about oil prices, inflation, and protecting portfolios against lost purchasing power.

Davi said investors should consider rotating away from mega-cap technology stocks and adding exposure to real assets and international markets. He suggested inflation-focused strategies could make up two to seven percent of a portfolio depending on overall stock and bond allocations.

See more: Astoria CEO & CIO: Why Advisors Need a Dynamic Playbook in Today’s Market

FCPI charges a 0.15% expense ratio and has posted year-to-date returns of 4.53%, according to ETF Database.

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