Emerging market equities and REITs. In addition to offering a more robust growth story than developed countries, emerging market stocks and bonds stand to benefit from appreciating currencies relative to the dollar, according to LPL. Real estate investment trusts could also be a beneficiary of reflation and rising property values, particularly in foreign markets. Diversified REITs such as iShares Dow Jones U.S. Real Estate Index (IYR) and Vanguard REIT (VNQ) stay in this country, while offerings such as SPDR Dow Jones International Real Estate (RWX) or FTSE EPRA/NAREIT Developed Asia (IFAS) venture abroad.
Inverse ETFs. By providing inverse exposure to Treasury bond prices, exchange-traded funds such as ProShares UltraShort 20+ Year Treasury (TBT) or Direxion Daily 10-Year Treasury Bear 3X (TYO) are a direct way to cash in on falling bond prices and rising yields that often accompany inflationary times.
These aren't for the faint of heart. The use of leverage amplifies returns in both directions, while the compounding of daily returns means they will not move in a precisely opposite direction of their target for more than a day. Because of these funds' whipsaw volatility, most people view them as part of a closely guarded short-term trading strategy that will produce outsize returns if interest rates increase and crushing losses if they head south again.
The Taxing Side Of Commodity ETFs And ETNs
Investors hoping to profit from rising commodity prices with commodity exchange-traded funds and exchange-traded notes should note the different tax treatment of these investments when they are held in taxable accounts.
SPDR Gold Shares, as well as the popular iShares Silver Trust (SLV) and iShares Gold Trust (IAU), are backed by stores of the precious metal held in secure vaults. Because they are structured as grantor trusts and treated as collectibles for tax purposes, investors are taxed upon sale at ordinary income rates.
ETFs that use futures contracts, such as the broad-based PowerShares DB Commodity Tracking (DBC), operate under a different set of tax rules. Annual income and profits are generally taxable and reported each year on a Schedule K-1. Upon sale of the shares, 60% of gains are taxed at long-term rates and 40% at short-term rates.
Yet another version, exchange-traded notes, trade on stock exchanges but are really unsecured promissory notes designed to track a particular commodity index. Examples of these include the iPath Dow Jones UBS Commodity Index (DJP) and other iPath offerings for specific commodities such as copper, oil and grains. These products typically produce no interest income and are subject to long-term capital gains rates if held for at least one year and short-term rates if held for under a year.