Poll: Pros say these investments are among the best hedges in the fight against high inflation

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Most experts in a recent Bankrate survey say stocks are a better investment option than bonds for overcoming high levels of inflation. Bankrate’s first quarter Market Mavens survey revealed mixed views on the sustainability of current inflation levels, but there was general agreement on the best investment to beat it: stocks.

Inflation has risen recently as economic activity surges in the wake of the global pandemic and supply chain issues prevent consumers from getting what they want when they want it.

Inflation hit 7.9% on an annual basis in February, according to the latest Consumer Price Index, or CPI, report. Used car and gasoline prices each rose by about 40%, while prices for foods like chicken, eggs, milk and fruit all jumped more than 10%.

Investors have wondered what higher inflation rates mean for the economy and markets. The Federal Reserve recently announced its first rate hike since 2018 as part of an effort to bring inflation under control. Bankrate asked analysts to recommend what a typical investor should consider doing now in the face of historically high inflation.

Focus on defensive stocks and avoid bonds

“Managing inflation risk means not buying bonds and protecting purchasing power by owning mid- and large-cap value stocks,” said Clark A. Kendall, CEO of Kendall Capital.

“An investor should be overweight equities versus fixed income and have a broadly diversified portfolio that includes companies in the energy and materials sectors, as we believe inflation has yet to peak,” said Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance.

Chuck Carlson, CEO of Horizon Investment Services, was even more specific, suggesting that investors focus on companies with high employee productivity, such as revenue per employee. He also recommended companies that are increasing their dividends, because “having a growing dividend stream can help combat the erosion of purchasing power due to inflation.”

Consider exposure to gold and commodities, but be cautious of recent price spike

Survey respondents’ views on more traditional inflation hedges such as gold and commodities differed, with some recommending exposure to these assets and others advocating caution after a price spike.

Carlson also suggested investors look to energy stocks because of their reputation as “good hedges against inflation.”

Joseph Kalish, chief macroeconomic strategist at Ned Davis Research, said the typical investor should have exposure to commodities and gold, as well as Treasury Inflation-Protected Securities, or TIPS, and gold. ‘immovable.

But not everyone is convinced of the benefits of these traditional hedges.

“While commodities have done well in some inflation regimes, commodities are often the cause of inflation,” said Dec Mullarkey, managing director of investment strategy and allocation at active at SLC Management. “Therefore, most of their rise in value tends to occur before general inflation sets in.”

“Gold has performed well in some cases, but is more volatile,” Mullarkey added.

“I would caution against continuing the recent commodity price boom by continuing a large allocation to sustainable assets,” said Brian Price, senior vice president of investment management and research at Commonwealth. “Some exposure is okay, but keep in mind a quick reversal if we get any encouraging news on the geopolitical front at some point.”

How long will high inflation last?

As for the persistence of inflation, survey respondents again diverged.

“I think inflation should moderate as we move forward into 2022,” Commonwealth’s Price said. “The current CPI readings have been shocking, but the Fed is keenly aware of this dynamic and will act accordingly with interest rate policy as we move forward.”

“Inflation is expected to peak in the coming months but will remain relatively high over the medium term,” said Kalish of Ned Davis Research.

But Independent Advisor Alliance’s Zaccarelli and Briefing.com’s chief market analyst Patrick J. O’Hare both think inflation will get worse from here.

“We don’t think he’s peaked,” O’Hare said.

Sam Stovall, chief investment strategist at CFRA Research, said he expects inflation to hit an annual rate of 8.5% in April.

Fed Chairman Jerome Powell said inflation was too high and the central bank was committed to controlling inflation. The Fed has indicated that it plans to raise interest rates six more times in 2022.

Methodology

Bankrate’s Q1 2022 survey of stock market professionals was conducted March 1-10 via an online survey. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website.

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