Inflation ETFs More Trick Than Treat

NEW YORK (TheStreet) -- Trick or treat? The new inflation protection ETFs from IndexIQ are a mixed bag of securities that could be more harmful than helpful to your portfolio. As the two new funds mash together a mix of equities and ETFs, fees, strategy and risk will all be uncertain.

IQ CPI Inflation Hedged ETF(CPI Quote) and IQ ARB Global Resources ETF(GRES Quote) seek to provide "real return" and help protect investors against inflation.

In its effort to provide return above the rate of inflation as measured by changes in the Consumer Price Index, CPI invests in top holdings like iShares Barclays Short Treasury Bond(SHV Quote), SPDR Barclays Capital 1-3 Month T-Bill ETF(BIL Quote), iShares Barclays 20+ Year Treasury Bond Fund(TLT Quote), and SPDR Gold Trust(GLD Quote).

GRES attempts to hedge against inflation by providing investors with a diversified portfolio of commodities related investments, shying away from overweighting in energy. Currently, GRES' top holdings include Sandvik AB(SAND Quote), Sumitomo Metal Mining(STMNF Quote), ProShares UltraShort S&P 500(SDS Quote), ProShares UltraShort MSCI EAFE(EFU Quote), and Barrick Gold(ABX Quote).

One of the most problematic aspects of these ETFs is their underlying structure. Since CPI is an ETF of ETFs, its 0.48% expense ratio will be on top of the fees associated with the underlying ETFs. Layering fees on top of fees can add up quickly.

Not only can the collection of CPI's various fees rise quickly, these fees can also vary depending on the underlying holdings. Some ETFs, with complex strategies or narrow focus, have higher fees than other funds. CPI will have a very unpredictable fee structure because fees can change if it adds more expensive ETFs to its underlying mix.