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) and IQ ARB Global Resources ETF ( GRES) 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), SPDR Barclays Capital 1-3 Month T-Bill ETF ( BIL), iShares Barclays 20+ Year Treasury Bond Fund ( TLT), and SPDR Gold Trust ( GLD).

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), Sumitomo Metal Mining ( STMNF), ProShares UltraShort S&P 500 ( SDS), ProShares UltraShort MSCI EAFE ( EFU), and Barrick Gold ( ABX).

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.

GRES' fee structure will also likely vary widely depending on the fund's current holdings. GRES is structured to hold stocks along with the ETFs in its underlying portfolio. A 0.75% base fee will be tacked on to whatever expenses are inherent in the underlying components. Again, as the holdings in the basket change, or switch from equities to ETFs, the fees for GRES could change dramatically.

Both funds have the potential to add and subtract leveraged ETFs from their underlying portfolios. This is problematic from a fee and risk prospective. Leveraged ETFs often have high fees and short-term strategies. The high fees from these leveraged ETFs will push up the overall fees for the ETFs.

Leveraged ETFs are sophisticated instruments that are usually only appropriate in short-term trading situations. The funds tend to be very volatile and often inappropriate for long-term, buy-and-hold investors. CPI and GRES, which will be rebalanced monthly, may be forced to hold volatile, losing, positions in leveraged ETFs for too long of a period.

The creation of a series of funds that protect against inflation through the use of different types of securities is not necessarily a bad idea. But using the ETF structure to execute a flexible inflation protection strategy with multiple types of securities seems to be beyond what is reasonable.

CPI and GRES try to force active trading strategies to protect against inflation into monthly-rebalanced ETFs. The result is a risky and expensive mix of securities that could be unpredictable and harmful to consumers.

-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion owned iShares Barclays 20+ Year Treasury Bond Fund.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

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