Inflation Toolkit: Five Ways to Protect Your Portfolio from Rising Consumer Prices
As inflation risks rise, a resilient allocation strategy could require more than stocks and bonds. Here are five ETFs to help hedge portfolios and diversify risk.
The risk of persistently higher inflation is forcing investors to rethink traditional portfolio construction. The classic 60/40 framework relies on one key assumption: bonds act as a ballast when equities sell off. However, history shows that relationship becomes less reliable in stagflationary environments.
U.S. Bond & Equity Correlation (24-Month Rolling)
As Bipan Rai, Managing Director, Head of ETF and Alternatives Strategy, BMO Global Asset Management, highlights in Commodities, Reconsidered: From Tactical Trade to Structural Allocation, we’re moving toward a macro environment defined by greater trade fragmentation, geopolitical tension, and supply constraints — conditions that can simultaneously pressure growth and elevate inflation. A traditional 60/40 portfolio can struggle on a real basis during these times, as shown in the 1970s and 80s, early 2000s, and so far in the current decade.
Please see and bookmark Bipan Rai’s Basis Points for more timely market commentary
The implication: investors need a more robust inflation toolkit — one that incorporates commodities and real assets for alternative sources of portfolio diversification.
Growth of a Dollar in Real Terms of a 60/40 Portfolio
Why Commodities Diversify Portfolios Dring Inflationary Periods
It comes down to what drives returns for different assets. For equities, it’s earnings growth, dividends and changes in multiples. For bonds it’s starting yields, duration effects and spread changes.
By contrast, commodity returns in the futures markets are driven by spot price changes and roll yield. Both of those are impacted by supply and demand imbalances – which make them fundamentally different than typical financial securities like stocks and bonds – and less exposed to inflationary pressures.
This distinction matters in inflationary environments. When inflation is driven by higher input costs (energy, metals, food), commodities themselves are often the source of the inflation shock, rather than being negatively impacted by it.
As a result, commodities can rise while both stocks and bonds struggle — creating true portfolio diversification.
Incorporating Inflation Resilience with ETFs
For investors looking to address this potential portfolio gap, BMO offers the following ETFs that provide both diversified and targeted inflation hedge exposures.
1. Broad Commodities – Core Inflation Hedge
BMO Broad Commodity ETF (ZCOM / ZCOM.F)
For a structural allocation, broad exposure is important to reduce concentration risk as different commodity sectors respond to different drivers. ZCOM tracks the Bloomberg Commodity Index Total Return, providing low-cost diversified exposure across energy, metals, and agriculture — key inputs into the global economy.
2. Energy – Cyclical Inflation Beta
BMO Equal Weight Oil & Gas Index ETF (ZEO) / BMO Covered Call Energy ETF (ZWEN)
Energy is often a primary driver of inflation spikes. Energy equity exposure adds leverage to commodity price moves, while the covered call variant can enhance income and dampen volatility.
3. Gold – Defensive Real Asset
BMO Gold Bullion ETF (ZGLD / ZGLD.U / ZGLH) / BMO Covered Call Spread Gold Bullion ETF (ZWGD)
Gold has historically acted as a store of value and safe haven during periods of monetary instability or geopolitical stress. The call spread version produces income from an asset that does not, while managing upside participation to maintain gold’s diversification benefits.
4. Equities with Inflation Sensitivity
BMO S&P/TSX Capped Composite Index ETF (ZCN)
BMO MSCI Emerging Markets Index ETF (ZEM)
Overweighting broad equity exposure with embedded inflation linkage can also be utilized. Canadian equities have a natural exposure to commodities (heavy weighting to energy and materials), while emerging markets may benefit from rising commodity export revenues and nominal growth.
5. Inflation-Linked Bonds – Direct Protection Against CPI
BMO Short-Term US TIPS Index ETF (ZTIP / ZTIP.U / ZTIP.F)
While commodities and real assets provide indirect inflation protection through rising input prices, U.S. Treasury Inflation-Protected Securities (TIPS) offer a more direct hedge. TIPS are designed to adjust their principal value based on changes in inflation (as measured by CPI), helping preserve real purchasing power. Focusing on short-term TIPS reduces vulnerability to rising interest rates, providing a more targeted exposure to realized inflation, rather than interest rate expectations.
Putting It All Together
In a world where inflation is more volatile — and traditional diversification less reliable — the case for real assets has strengthened. As BMO ETFs’ head strategist Bipan Rai emphasizes, this is not to be viewed as an “inflation trade,” but a structural shift toward assets that behave differently when traditional financial assets struggle.
Even modest allocations can improve portfolio resilience — helping investors navigate environments where both inflation and uncertainty remain elevated.
Performance
Ticker |
Year-to-Date |
1-Month |
3-Month |
6-Month |
1-Year |
3-Year |
5-Year |
10-Year |
Since Inception |
Inception Date |
ZCN |
7.89% |
3.79% |
6.98% |
13.50% |
39.98% |
21.44% |
15.43% |
12.57% |
9.91% |
2009-05-29 |
ZEM |
14.52% |
10.60% |
6.18% |
12.29% |
46.22% |
20.40% |
7.84% |
9.93% |
6.66% |
2009-10-20 |
ZGLD |
4.41% |
-2.31% |
-7.71% |
11.21% |
37.27% |
— |
— |
— |
45.39% |
2024-03-04 |
ZEO |
34.10% |
1.79% |
24.23% |
38.50% |
59.52% |
25.00% |
28.02% |
10.81% |
5.85% |
2009-10-20 |
ZTIP.F |
1.35% |
0.77% |
0.94% |
1.27% |
2.08% |
3.55% |
2.58% |
— |
2.72% |
2021-01-20 |
ZGLH |
4.75% |
-0.09% |
-7.97% |
13.54% |
36.68% |
— |
— |
— |
41.55% |
2024-03-05 |
ZWEN |
29.28% |
-2.06% |
19.04% |
30.12% |
48.11% |
16.93% |
— |
— |
14.43% |
2023-01-23 |
ZWGD |
3.12% |
-2.25% |
-7.95% |
9.14% |
— |
— |
— |
— |
30.86% |
2025-05-22 |
ZGLD.U |
5.50% |
0.05% |
-7.49% |
14.83% |
39.32% |
— |
— |
— |
45.19% |
2024-03-04 |
ZTIP |
0.88% |
-1.43% |
1.14% |
-1.06% |
2.41% |
4.96% |
5.53% |
— |
4.96% |
2021-01-20 |
ZTIP.U |
1.93% |
0.95% |
1.39% |
2.16% |
3.93% |
4.87% |
3.44% |
— |
3.54% |
2021-01-20 |
ZCOM |
Returns are not available as there is less than one year’s performance data. |
2025-10-21 |
||||||||
ZCOM.F |
2026-04-28 |
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Source: Bloomberg, as of April 30, 2026. Past performance is not indicative of future results.
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