Inflation could help your portfolio

Federal Reserve Chairman Ben S. Bernanke contends we don't need to worry about inflation. He must not shop for groceries or drive a fossil-fueled car.

You might not be able to fight inflation at the supermarket checkout or at the filling station, but you can capitalize on it in your portfolio.

Expanding populations, uncertain crop yields, and volatile weather all affect global food prices, which the United Nations last week said hit an all-time high in February. (An index of 55 food commodities rose 2.2 percent in January and 34 percent from a year ago, according to the U.N.'s Food and Agriculture Organization).

Wall Street imagines myriad ways to invest in global food inflation. One is to invest in agribusiness, the modern term for farming. The PowerShares DB Agriculture Fund (symbol: DBA), an exchange-traded fund, or iPath Dow Jones-UBS Livestock Total Return Fund (symbol: COW) are two ways, the latter being an exchange-traded fund based on the performance of a livestock index.

If you believe the effects of inflation are weakening the U.S. dollar, bulk up on precious metals in your portfolio, using vehicles such as the ETF Securities White Metals Basket Trust (symbol: WITE). For those investors who have already profited from gold's run-up to nearly $1,500 an ounce, broaden your exposure to the metals group this way. It is structured like the SPDR Gold Trust (symbol: GLD), but it offers exposure to metals such as silver, palladium, and platinum. Global X funds also launched the first uranium-mining ETF, Global X Uranium (symbol: URA), as well as Global X Gold Explorers (symbol: GLDX). Both are appropriate for traders or active investors - not buy-and-hold types, mind you - looking to target big moves in commodities.

Beware, the holdings are overweighted toward larger companies and very concentrated: At one point, half the GLDX fund was in 10 positions, and in URA, only five holdings.

Adam Patti, founder and chief executive officer of IndexIQ, has another way to capitalize on inflation in commodities. He argues that the market price of gold and other precious metals is not driven by worries over inflation, but is more sentiment-driven and, thus, not a good way to counter inflation. (He does not like government-issued TIPS either, but that is another story).

Patti's firm recently launched a fund called IndexIQ Global Natural Resources (symbol: GRES), which he contends is "more diversified than some of the other commodities funds out there," such as the popular iShares S&P GSSI Natural Resources Sector Index Fund (symbol: IGE). "Many are significantly overweight in energy stocks, like IGE, which is 70 [percent] to 80 percent energy," Patti noted.

IndexIQ's GRES holds companies from all the major commodity classes, including precious metals, industrial metals, timber, water, and coal. The fund also rebalances when commodities have big run-ups, and hedges with 20 percent of the portfolio in S&P index and EAFE index futures to reduce volatility.

By the way, there is a price war continuing among brokers vying for ETF trades: TD Waterhouse at one point cut trading prices to zero for 101 ETFs, and Schwab and Vanguard have also been cutting fees. Make sure you ask for that discount.

The CFA Institute recently issued "A Primer for Investment Trustees" that helps newbies get acquainted with the basics of fiduciary duties regarding investments. It is a good read for anyone joining an investment board or finance committee for the first time, and retail investors can benefit, too, from the plain language explaining the risks of different asset classes, said Bud Haslett, executive director of the Research Foundation of the CFA Institute.

"Trustees are smart and successful in their own fields, but not necessarily experts in investment management," Haslett said. Best of all, it's free for download: http://www.cfapubs.org/toc/rf/2011/2011/1.

Are you a woman interested in helping women through microfinance? Check out the Women In Leadership of Greater Philadelphia (www.wil-gp.org), which does so by financing small banks - most of which started with just $5,000 each. They are in the process of raising money for the next microfinance bank (the last one funded local women in Guatemala to start their own businesses).