Inflation Stocks: VanEck Vectors Steel ETF (SLX)

The biggest scare to the markets is inflation which is caused by a massive amount of government spending and proposed spending. Stocks can be a great hedge against inflation, as the value of the shares will increase with inflation. Buying a stock that is in the basic material sector will provide you with a lot of flexibility.

One sector that will likely go up regardless of inflation is steel which has tripled in price.  Many banks and investment firms have projected that it will continue.

That is why we think VanEck Vectors Steel ETF (SLX) could be a great inflation stock pick.  The ETF tries to copy, before fees and expenses, both the yield and price performance of the NYSE Arca Steel Index (STEEL).  The index’s mission is to track the overall performance of companies involved in the steel sector.

As always, we recommend that readers do their own research.  There are many strategies such as buying gold to hedge against inflation.  The goal of this article to help readers understand inflation and provide an ETF pick.

VanEck Vectors Steel ETF (SLX)

VanEck Vectors Steel ETF, Inc. is an exchange-traded fund (ETF), which gives you the chance to invest in companies that are building or making steel products through a single investment. Some of these companies include ArcelorMittal, United States Steel Corporation, and AK Steel Holding Corporation.

The risk level for this ETF is low due to its focus on the steel industry, making it a good alternative for investors that need moderate-to-low volatility in their portfolio but want exposure to metals and steelmaking stocks.

Steel ETFs have been around since 2011 with VanEck Vectors being the first such fund released by commodity specialists VanEck Vectors LLC. With more than $2.9 billion in assets under management, VanEck Vectors Steel ETF is a popular low-cost way for investors to get exposure to companies that are building or making steel products.

The price of this fund moves pretty much in line with the performance of the S&P Metals & Mining (SMI) industry, but it’s not quite as volatile because it excludes the riskier commodity producers.

Diversification is a critical component of any well-designed portfolio and, for small-cap investors, steel ETFs can provide a useful tool to help diversify holdings. The VanEck Vectors Steel ETF is one of the largest steel ETFs in terms of assets, making it a reliable choice for investors. It’s also an appealing choice due to its low expense ratio, which helps keep more of your money working for you.

With its small cap-centric approach that includes many risky small-cap stocks along with all the steel producers, this is not a great ETF to help diversify a multi-ETF portfolio. Since it is an exchange-traded fund, you can buy this asset at a moment’s notice through your online trading platform or brokerage account.

VanEck Vectors Steel ETF Pivot Points

What is inflation?

Inflation is a general increase in the level of prices of goods and services. Inflation is caused by an excess supply of money. If people have too much money, this causes inflation. So how does it happen? The banks need more reserves to hold in order for transaction balances to equal demand deposits, and so they end up printing more money.

This eventually causes the value of this newly printed money to decrease – so we say that inflation has “increased”.

The price of goods and services depends on supply, or the measure of how much is produced, and demand, which is how much people want to buy. Supply can be affected by changes in technology or in the government’s spending policy, which can encourage or discourage production. Changes in money supply can also affect prices.

The government uses fiscal policy in order to control the rate of inflation. Fiscal policy is the government’s actions on taxes and spending. Think of it as a combination of monetary and fiscal policy that aims at lowering the rate of inflation.

So where does inflation come from?

To understand where inflation comes from, you need to know what causes it.

The government suddenly says that a certain amount of money will be available every month. The government uses “Interest Rate Targeting as way to control inflation.

In theory, IRT is the amount of money created, interest rates, or expansionary/tightening fiscal policies that affect demand and supply (e.g., tax cuts). As for a “target”, there can be more than one, but they are all aimed at reducing the level and/or change in price levels (or reducing variability) over time.

The government puts money into the system several ways, but the more recent and largest one is the Stimulus Bills and infusion by the Federal Reserve.

This means that each year the amount of money available will be bigger than before; so this new money will cause prices to increase faster than before.

This is called inflation. But, why does it happen?

Inflation can be explained by two simple words: supply and demand. The more the money supply increases, the worse inflation gets.

The money supply can only increase if A) there are more goods being produced or B) people want to spend more than they can afford to.

If supply increases and demand stays the same, prices go down. This process is called deflation and is actually a good thing for consumer. Unfortunately we are not likely to experience this anytime soon.

Why invest in Steel?

The global steel industry is not a piece of cake to be eaten in one’s own will, and the steel prices will regularly increase. It is no secret that steel prices have risen in recent years as the demand continues to rise every year.

A recent poll by S&P Global Platts shows more than half of the respondents expected the steel prices to stay the same or increase in the next couple of months.

The US hot rolled coil steel price price rose 20% MOM to $1,280 per short ton in March. However, the HRC price has flattened out a little since then.

Rising steel prices are starting to have an impact on the economies of countries all over the world, with its effects being felt in different sectors of industry. The price of steel has risen dramatically, and with it have gone many other industries as well.

The steel industry has risen in recent years due to increasing demand for the material and the need for energy has also been rising at an exponential rate. This could lead to a rise in prices of other products such as cars which are made from steel as a result. Many industries will be affected as a result of this, and here is a brief explanation of some of the industries that could be affected by increased steel prices.

Rising Steel Prices: The Construction Industry

Another notable industry that would see a boost in profits due to an increased demand for steel would be the construction industry. Companies that need to invest in new buildings or renovate existing ones will often benefit from high steel prices. Some key areas where high demand for steel is likely to have a significant impact on the economy are in the oil and gas industry and in the agricultural sector.

The construction industry is likely to benefit from the increase in steel prices. Examples of this would be companies that are involved in building, or renovating, offices or houses. Some key areas where demand for steel is likely to have an impact on the construction market include the rental market and the retail sector.

Rising Steel Prices: The Oil & Gas Industry

As mentioned above, rising costs can result in increased investment in other markets, and one industry that’s likely to see a boost due to this is the oil & gas industry. In addition to this, rising costs also force companies to become more competitive as they seek new manufacturing partners. This could lead to better choices for consumers as companies compete for steel orders by offering lower prices.

The construction industry is likely to benefit from the increase in steel prices. Examples of this would be companies that are involved in building, or renovating, offices or houses. Some key areas where demand for steel is likely to have an impact on the construction market include the rental market and the retail sector.

Rising Steel Prices: The Agriculture Sector

The agricultural sector could also benefit from rising steel prices. For example, if rainfall were to decrease as a result of climate change, farmers would be forced to use more water in order to grow crops that use more metal. This could result in an increase in agricultural production and subsequently higher crop prices.

VanEck Vectors Steel ETF 1 Day Moving Averages