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

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

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This comes in a market that has entered bearish territory and where investors are getting more nervous by the day. Today, 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.com, a data platform for digital assets, told GOBankingRates that gold has always provided portfolio protection in inflationary environments, while Bitcoin is internet gold and should imitate that on time.

“It is important to note that inflation protection only works if the asset in question is cheap or at fair value. Overvalued assets will never be able to provide inflation protection,” he said. “In 2022, stocks and bonds bubbled up at the same time, and so neither asset class proved to be an effective inflation hedge. Bitcoin was also overvalued, but gold has traded close to fair value. Bitcoin is no longer too expensive,” he added.

He also noted that Gold is stable while Bitcoin is volatile.

“Because they naturally react differently to risky and risky market conditions, it’s hard to imagine them having a bubble at the same time,” he said, adding that they are not in competition, playing different roles, have a global cross-border and cultural appeal, and come together as a hedge against liquid inflation in all weathers.

Precious metals

Derek Izuel, CIO, Shelton Capital Management, told GOBankingRates that precious metal prices are determined by long-term expectations of actual rates of return. “With interest rates rising and Fed sentiment changing since late 2021, expectations for real rates have risen, turning positive for the first time since before the pandemic,” Izuel said. “Gold rises when those expectations are negative, so despite rising inflation, the Fed’s quick reaction is likely to put pressure on precious metals.”

Gold is back, wrote Edward Moya, senior market analyst, The Americas OANDA in a note sent to GOBankingRates. “Gold has resumed its role as a safe haven as financial markets worry about aggressive central bank tightening globally and US economic data slows. Recession fears are growing and this is triggering an exodus of equities and an influx of bullion safe-haven buying,” he added.

Immovable

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.

He added, however, that “there could be opportunities in counter-cyclical areas of real estate such as multi-family and healthcare-focused commercial buildings.”

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On top of that, according to Annuity.org, commercial real estate (CRE) has always been another effective hedge against inflation, as rising property values ​​and rents allow CRE owners to maintain real value. of their properties while generating higher incomes. overtime.

High yield and variable rate bank loans

High-yield bank loans (HYBLs), also known as leveraged loans, are another effective way to protect finances against inflation, Annuity.org noted, adding that the protective nature of these loans stems from the fact that their interest rates are periodically reset to keep pace with prevailing market rates, which are highly correlated to inflation. However, in times of economic difficulty, these can display volatility similar to that of equities.

“As a result, they experience periods of illiquidity, when assets cannot be quickly or easily converted into cash without loss of value. To minimize your exposure to this risk, be sure to invest in HYBLs through a fund-like vehicle with many individual positions,” according to Annuity.org.

Shares

According to Izuel, the best opportunities will be in international markets, as sector composition and relative valuation favor these stocks during a downturn in economic activity.

“Emerging markets will be strong when the economy recovers, and the removal of COVID restrictions in China could be an early catalyst,” he said, adding, “favoring smaller stocks in the United States – they will lead the recovery and the ride of the FANG stocks are over.

High-quality, dividend-paying commodities and stocks

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

Graff explained that commodity prices have soared as demand outpaces limited global supply, and Fed Chairman Powell even indicated that he lacks the ability to control commodity prices – therefore, prices are likely to stay higher for longer than many realize.

In terms of high quality dividend payers, “they are a good option because they often have pricing power, allowing earnings, free cash flow and dividends to grow with inflationary price increases”, he added.

“At DIVZ, we are currently focused on investing in high-quality dividend payers that also have income directly linked to rising commodity prices,” he added. “Many of these companies have pledged to return excess cash flow generated by high commodity prices to investors in the form of higher dividends and share buybacks, thereby protecting investors from the effects of inflation. “

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

“We also have great exposure to names in healthcare and consumer staples that have pricing power like Johnson & Johnson (JNJ), UnitedHeatlh Group (UNH), Abbvie (ABBV), Philip Morris ( PM) and Altria Group (MO), ” he added.

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

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