Experts share where investors should focus their money in a high-inflation environment

IInflation continued to rise in May, with worse-than-expected data. That Consumer Price Index (CPI) up 8.6% on June 10 for the 12 months ended May, the largest 12-month increase since the period ended December 1981.

Live Updates: Financial trends, financial news and more
Discover: Everything you need to know about how the Fed Rate is affecting your personal finances

This comes amid a market that has enter bear territory and investors are getting more nervous by the day. Now several experts are sharing their thoughts on where to invest in this highly inflationary and extremely volatile environment.

gold and bitcoin

Charlie Morris, CIO of ByteTree Asset Management and Founder of ByteTree.coma data platform for digital assets, GOBankingRates said gold has historically provided portfolio protection in inflationary environments, while bitcoin is Internet gold and this is expected to be emulated over time.

“It is important to note that inflation protection only works if the asset in question is cheap or fairly valued. Overpriced assets will never manage to provide protection against inflation,” he said. “In 2022, stocks and bonds experienced a bubble at the same time and therefore neither asset class has proven to be one effective protection against inflation. Bitcoin was also overpriced, but gold was trading close to fair value. Bitcoin is no longer overpriced,” he added.

He also noted that gold is stable while bitcoin is volatile.

“Because they inherently react differently to risk-on and risk-free market conditions, it’s hard to imagine that they have a bubble at the same time,” he said, adding that they don’t compete, play different roles, have a global cross-border and cultural appeal and come together as an all-weather liquid inflation hedge.

precious metals

Derek Izuel, CIO, Shelton Capital ManagementGOBankingRates said so precious metal Prices are driven by long-term expectations of real returns. “With the rise in interest rates and the Change in mood at the Fed Real interest rate expectations have risen since late 2021, turning positive for the first time since the pre-pandemic period,” Izuel said. “Gold rises when these expectations are negative, so the Fed’s quick response should put pressure on the precious metals despite rising inflation.”

Gold is back, Edward Moya, Senior Market Analyst, The Americas OANDA, wrote in a note to GOBankingRates. “Gold has regained its safe haven role as financial markets worry about aggressive tightening by global central banks and US economic data slows. Recession fears are mounting and that is triggering a stock exodus and an influx of safe-haven bullion buying,” he added.

property

Izuel said that with a slowing economy, rapidly rising mortgage rates and an overvalued housing market, real estate is likely to be weak going forward.

However, he added that “opportunities may exist in contrarian real estate areas such as multi-family and healthcare properties.”

Related: 6 alternative investments to consider for diversification in 2022

Additionally, according to Annuity.org, commercial real estate (CRE) has historically been another effective hedge against inflation because the Increase in real estate values ​​and rents allows CRE owners to preserve the real value of their properties while generating increased income over time.

High-interest, variable-rate bank loans

High-yield bank loans (HYBLs), also known as leveraged loans, are another effective way to protect finances from inflation, Annuity.org noted, adding that the protective nature of these loans stems from the fact that their interest rates reset regularly to keep them in line with prevailing market interest rates, which are highly correlated with inflation. However, in difficult economic times, these can exhibit equity-like volatility.

“As a result, they experience periods of illiquidity where the assets cannot be quickly or easily converted into cash without depreciating in value. To minimize your risk, it is highly recommended that you invest in HYBLs through a fund-like vehicle with many individual positions,” according to Annuity.org.

Shares

According to Izuel, the best opportunities will come international marketsas sector composition and relative valuation favor these stocks during a slowdown in economic activity.

“Emerging markets will be strong as the economy recovers and China’s lifting of COVID restrictions could be an early catalyst,” he said, adding, “favor smaller stocks in the US – they will lead the recovery and the.” ride the FANG shares is over.”

Commodities and quality dividend stocks

Austin Graff, portfolio manager at TrueMark investmentswho operates DIVZ, a dividend-based ETF that serves as an inflation hedge, told GOBankingRates that the best hedges against inflation in the current environment are commodities and high-quality dividend-paying stocks.

Graff explained that commodity prices have skyrocketed as demand exceeds limited global supply, and Fed Chair Powell has even indicated that he is unable to control commodity prices – hence prices are likely to get longer remain high than many expect.

As for high-quality dividend payers, “they’re a good option because they often have pricing power and the ability to grow earnings, free cash flow, and dividends with inflationary price increases,” he added.

“At DIVZ, we are currently focused on investing in high-quality dividend payers that also have returns that are directly related to higher commodity prices,” he added. “Many of these companies have committed to returning the excess cash flow generated by high commodity prices to investors in the form of higher dividends and share buybacks — to protect investors from the effects of inflation.”

Impact of Inflation: 2012 vs 2022 prices may not be as different as you think
Discover: Four unusual places to invest money during a bear market

According to Graff, names that fall into the category of beneficiaries of higher commodity prices would include Devon Energy (DVN), Exxon Mobil (XOM) and Coterra Energy (CTRA).

“We are also heavily exposed to healthcare and consumer staples names with pricing power such as Johnson & Johnson (JNJ), UnitedHeatlh Group (UNH), Abbvie (ABBV), Philip Morris (PM) and Altria Group (MO) . ” he added.

More from GOBankingRates

This article originally appeared on
GOBankingRates.com:
Experts share where investors should focus their money in a high-inflation environment

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Comments are closed.