IndexIQ launched a new exchange-traded fund today designed to capitalize on investors’ fear of inflation.

The new IQ CPI Inflation Hedged ETF (NYSEArca: CPI) is designed to provide a “real return” of 2-3 percent above the rolling 12-month Consumer Price Index.

CPI is an ETF of ETFs. Component ETFs are chosen by a rules-based strategy that considers the historical performance of various asset classes during inflationary environments. For instance, as inflation expectations rise, the fund will allocate toward short-term bonds and away from long-term bonds, as one would expect long bonds to decline in an inflationary environment.

The fund can use all manner of ETFs, including leveraged and inverse funds, to execute its strategy and attempt to deliver real returns.

As of Oct. 26, the fund’s portfolio was allocated primarily in short-term T-bills. That makes some sense: Given that CPI is currently negative, the fund can easily achieve its target 2-3 percent real return using short-term T-bills.

The index rebalances monthly.

“We expect to see approximately 50-80 percent turnover annually,” said Adam Patti, CEO of IndexIQ. “We’re currently coming out of a deflationary environment. I would expect that we’re going to see a pretty drastic change in that portfolio as inflation increases.”

CPI at launch charged a hefty fee of 0.65 percent, representing a 0.48 percent expense ratio and 0.17 percent in acquired fund fees. That number could rise if the fund adds more expensive constituent ETFs.

Based on backtested results, CPI would have delivered 4.98 percent returns over the past five years with just 1.90 percent volatility. That is a similar return with much less volatility than the Barclays Capital TIPS Index. Investors often turn to TIPS when they look for inflation protection, despite the somewhat weak correlation between TIPS and the CPI.

Of course, investors will have to determine how much they trust IndexIQ’s backtested results before they adopt the strategy. The prospectus notes that the strategy is based on historical correlations, and there is no guarantee that those correlations will hold in the future. Still, Patti says investors can judge for themselves.

“There’s no black box,” said Patti. “You can look and see exactly what’s in the portfolio. You can look at our rulebook and see exactly how the index is constructed. We think this is a better mousetrap for investors nervous about inflation.”

Inflation-hedging tools have been extremely popular with ETF investors this year. The iShares Barclays TIPS ETF (NYSEArca: TIP) attracted $7 billion in new assets through September of this year, while the SPDR Gold (NYSEArca: GLD) pulled in $12.3 billion. Investors are clearly worried about inflation and they’re turning to ETFs to protect their portfolios.

IndexIQ isn’t the only company to try to capitalize on the trend. Pimco recently launched the world’s first short-term TIPS ETF, the Pimco 1-5 Year U.S. TIPS Index ETF (NYSEArca: STPZ). Short-term TIPS are said to have a higher correlation to inflation than broad-based TIPS funds. Since its launch, STPZ has gathered $72.1 million in assets.

The prospectus for CPI is available here.