Over the past month, markets have been rattled by the escalating conflict in the Middle East. Risk assets were the first to react, but the damage didn’t stop there. Even traditional safe havens, including gold and other precious metals, have fallen sharply. At the same time, the U.S. dollar has strengthened, and central banks across developed markets, including the Federal Reserve, have shifted toward a more hawkish tone. In a landscape where both risk and safety seem uncertain, it’s worth taking a closer look at how one of our strategies designed for turbulent inflationary environments, the WisdomTree Inflation Plus Fund (WTIP) has performed.

How Did We Get Here?

The recent closure of the Strait of Hormuz has pushed oil prices significantly higher, bringing inflation risk back to the top of the list of concerns for the market. For many investors, this feels uncomfortably familiar. The post-COVID inflation shock is still fresh, and the prospect of another prolonged inflationary period is enough to cause heartburn for investors who are not positioned appropriately. While the underlying cause of this inflation spike differs from the last time around (monetary response to COVID), the implications are similar: rising costs, shifting policy expectations, and a growing need for effective hedges. Near-term inflation expectations have already begun to climb, and if the conflict persists, those pressures may only intensify.

Figure 1: 1-Year Zero-Coupon Inflation Swaps

WTIP’s Performance

WTIP was designed for moments like this. The strategy blends commodities with U.S. Treasury Inflation-Protected Securities (TIPS) to address different types of inflationary shocks (expected and unexpected). TIPS tend to hedge expected inflation, though they usually react with a bit of a lag. Commodities, by contrast, have historically responded more quickly when inflation surprises to the upside (unexpected inflationary shocks) and often move ahead of broader trends. By combining the two, WTIP aims to create a more well-rounded hedge, rather than depending on any single approach to carry the load.

The commodity component of the strategy is particularly dynamic. Eighty percent of the allocation is driven by momentum-based models that evaluate 16 commodity futures. Each is assigned a signal—long, short or flat— based on its own price behavior. Exposure is then distributed evenly across commodities with active signals, allowing the portfolio to adapt as conditions change. Alongside this, there is a structural allocation to precious metals, with 7.5% each dedicated to gold and silver.

Figure 2: WTIP Commodity Allocation Framework

The current environment is a perfect example of how this design has translated into performance. Despite the significant declines in gold and silver, down more than 13% and 35%, respectively, from their all-time highs at the beginning of the conflict, WTIP has managed to post a gain of 6.54% over the same period. That brings its year-to-date return to around 12%. In a market where many asset classes are firmly in bear territory, this outcome is extraordinary.

Figure 3: Gold and Silver Prices YTD

Figure 4: Growth of $100 Invested in WTIP at the Beginning of the Year

Figure 5: Performance

Much of this can be attributed to the aforementioned systematic, momentum-based approach embedded in the strategy. By evaluating each commodity relative to its own price history, the model determines whether to take a long or short position, striving to sidestep areas of weakness while leaning into strength. This has helped the fund avoid big drawdowns in certain assets, such as bitcoin exposure, while increasing exposure to areas benefiting from the current environment, including crude oil. The diversification across commodities, combined with the complementary role of TIPS, has further contributed to the performance during a highly volatile period.

Conclusion

In moments like these, when markets are extremely volatile, the value of thoughtful portfolio construction becomes increasingly clear. WTIP's performance this year underscores how a well-designed strategy may help absorb shocks rather than amplify them.

By combining different inflation-sensitive assets and layering in a disciplined, systematic approach, WTIP has held up in an environment where most asset classes, including traditional safe havens, have bled lower. More importantly, it aims to provide investors with a measure of stability at a time when stability has been in short supply.