Income-Generating ETFs in a High-Inflation World: Evaluating FLTR and Beyond

In an era marked by persistent inflation and shifting interest rates, investors are increasingly seeking income-generating assets that can preserve purchasing power. The VanEck Vectors Investment Grade Floating Rate ETF (FLTR) has emerged as a popular choice for its focus on floating rate notes (FRNs), which adjust yields in line with benchmark rates. However, while FLTR offers a buffer against rising rates, its performance since 2020 reveals both strengths and limitations in high-inflation environments. This article evaluates FLTR's track record and identifies alternative ETFs that may deliver superior real returns.

FLTR: A Floating Rate Anchor in a Rising Rate World

FLTR tracks the MVIS® US Investment Grade Floating Rate Index (MVFLTR), which consists of investment-grade corporate FRNs. These instruments reset coupon payments periodically, making them less vulnerable to interest rate hikes than fixed-rate bonds. From 2020 to 2025, FLTR delivered a 5.73% return over the past 12 months as of July 2025, with a 10-year annualized return of 3.09%. Its risk-adjusted metrics, including a Sharpe Ratio of 2.42 and a Sortino Ratio of 2.81, highlight its resilience to volatility.

Yet, FLTR's performance lags behind broader equity benchmarks like the S&P 500, which averaged 11.80% annualized over the same period. While its low expense ratio (0.14%) and stable dividend yield (5.33% trailing 12-month yield) make it an efficient option, its returns are modest in inflation-adjusted terms. For instance, during the 2020 market crash, FLTR experienced a 17.84% drawdown, recovering in 113 trading days. Smaller drawdowns in 2021–2022 further underscore its sensitivity to macroeconomic shocks.

Beyond FLTR: Alternatives for Superior Inflation-Adjusted Returns

For investors seeking stronger real returns, several ETFs leverage diverse strategies to hedge inflation more effectively:

1. VanEck Real Assets ETF (RAAX) – 0.75% Expense Ratio
   RAAX combines gold, commodities, and real estate to combat inflation. It returned 28.8% in 2021 and 1.8% in 2022, outperforming FLTR during high-inflation years. While its 30-day SEC yield (1.7%) is lower, its diversified exposure to tangible assets provides a hedge against currency devaluation.

2. Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) – 0.59% Expense Ratio
   PDBC's portfolio of energy, metals, and agriculture futures has historically correlated with inflation. As a broad-based commodity ETF, it serves as a direct hedge against rising prices, with a tax-efficient structure avoiding K-1 forms.

3. Dimensional Inflation-Protected Securities ETF (DFIP) – 0.11% Expense Ratio
   DFIP focuses on Treasury Inflation-Protected Securities (TIPS), adjusting principal with CPI. Its low expense ratio and alignment with inflation-linked bonds make it a cost-effective option for preserving real value.

4. Alerian MLP ETF (AMLP) – 0.85% Expense Ratio
   AMLP targets energy infrastructure MLPs, which have historically passed rising costs to consumers through regulated pricing. It returned 39.5% in 2021 and 25.1% in 2022, showcasing strong performance in inflationary environments.

Strategic Allocation: Balancing Yield and Risk

While FLTR remains a solid option for low-volatility income, investors should consider allocating a portion of their portfolios to alternatives with higher inflation-adjusted returns. For example:
- Commodities (PDBC) can offset inflation directly, though they carry higher volatility.
- TIPS (DFIP) offer guaranteed principal adjustments but may underperform in low-inflation periods.
- Equity-based strategies (AVIE, IFRA) leverage sectors like energy and infrastructure, which historically benefit from inflation.

Conclusion: Navigating the Inflationary Landscape

FLTR's floating rate structure provides a baseline for income stability, but its returns are best suited for conservative investors prioritizing capital preservation. For those seeking to outpace inflation, a diversified approach incorporating commodities, TIPS, and inflation-sensitive equities may offer superior real returns. As central banks navigate the “higher-for-longer” rate environment, strategic allocations to these alternatives can enhance portfolio resilience while generating income.

Investors should weigh their risk tolerance and time horizon when selecting inflation-hedging ETFs. While FLTR excels in risk-adjusted performance, a mix of complementary strategies may unlock stronger real returns in a high-inflation world.