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How to trade the 40-year-high inflation like top investors using ETFs

Published Thu, Feb 10 20222:07 PM ESTUpdated Thu, Feb 10 20226:37 PM EST

Yun Li @YunLi626

Inflation, which just hit a fresh four-decade high, has prompted some of Wall Street's biggest investors to double down on their favorite trades to benefit from surging price pressures. U.S. consumer prices spiked in January by more than expected, with the consumer price index rising 7.5% year over year for its highest reading since 1982. The persistently high inflation is putting more pressure on the Federal Reserve to raise interest rates. Following Thursday's hot reading, the market was pricing in a 77% probability of six rate hikes in 2022. A slew of longtime money managers and investors — from Paul Tudor Jones to David Einhorn and Seth Klarman — have recently warned about the growing inflation threat to the market and revealed their preferred trades to hedge the risk. Baupost Group's Klarman said in a letter last month that inflation poses a "real danger" to the markets. Billionaire hedge fund manager Jones late last year called inflation the "No. 1 issue facing Main Street investors" and the "single-biggest threat" to financial markets and the economy. "It's absolutely dead for a 60/40 portfolio, for a long stock, long bond portfolio. So the real question is how you defend yourselves against it," Jones told CNBC in October. The founder and chief investment officer of Tudor Investment Corp. said that it's time to double down on inflation hedges including commodities and Treasury inflation-protected securities. Exchange-traded funds that invest in U.S. Treasury inflation-protected securities are a widely used hedge against price pressures in the fixed income space. TIPS are Treasury securities indexed to inflation, so whe