Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.

INFLATION is a ‘Jekyll and Hyde’ character - while it may be good news for borrowers, as it erodes the value of their debts, it has devasting implications for savers, investors and retirees, chipping away at the value of your money. But investing in the right places can be one of the best ways to beat it. 

One: Take a punt on property
Historically, real assets such as infrastructure and property, have performed better than other areas during spikes in inflation. This is because their income tends to rise along with the general level of prices.

There are lots of ways to add real assets to your portfolio with one option being the iShares Global Property Securities Equity Index Fund, which features on the Fidelity Select 50

This passively managed vehicle aims to match the performance of the FTSE EPRA/
NAREIT Developed Index, a benchmark that consists of the shares of leading property companies from around the world. Many of these take the form of Real Estate Investment Trusts (Reits), a type of closed-ended fund that invests in the actual bricks and mortar buildings. 

“Real estate can act as a hedge against unanticipated inflation with the added option of diversification versus major equity indices,” says Brett Pybus, head of iShares EMEA Investment and Product Strategy.

The portfolio offers a highly diversified exposure to different types of property companies including retail, office and residential, although by far and away the largest geographic weighting is the US, which accounts for 61% of the assets. 

The fund fell sharply during the deflationary episode of the pandemic in 2020 losing just over 11% in the year, but then made almost 30% in 2021 when the global economy recovered. In aggregate it has returned 36.82% in the five years to the end of April.1

Pybus says that 2022 is set for a broader and stronger real asset market upswing, marked by a fast rebound upon reopening and a slow rebuild to recover lost capacity. “We see the cyclical rebound, technological change and the response to climate change as three dominant drivers of the outlook.”

For more views on the outlook for property as an asset class, watch our latest Investment Outlook video on property.

Two: Income from infrastructure 
There are also plenty of options when it comes to infrastructure, such as the FP Foresight UK Infrastructure Income Fund

An actively managed fund-of-funds that targets listed investment companies operating in the renewable energy and infrastructure sectors. The overall aim is to provide an annual income of 5% (which is not guaranteed) to be paid quarterly, with the possibility of capital growth. 

Mark Brennan, a Partner at Foresight, says that they expect the infrastructure and renewables companies they hold in the fund to offer good protection from an inflationary environment. 

“We see the outlook for the fund being very positive in the medium term, as high energy prices and high growth sub-sectors such as digital infrastructure should be supportive of high levels of income,” he says. 

Three: Hold gold
Perhaps the most obvious choice of real asset to protect against inflation is gold, which acts as a store of value. One of the most convenient ways to gain exposure is the yellow metal is to buy one of the physically backed ETFs such as iShares Physical Gold that invests in the actual bullion.

Alternatively, there are various funds that invest in the shares of gold mining companies, such as the Ninety One Global Gold Fund.

Manager George Cheveley says that the fund tends to outperform gold prices when they are rising. “As many gold companies today have little debt and strong cash flows, we believe rising dividend pay-outs and share buybacks will lead to better shareholder returns even if prices remain flat.”

The fund has an extremely concentrated portfolio with just 23 different holdings at the end of March with the majority listed in Canada and Australia.

While the fund’s performance has been strong at times, it has been volatile, so it is important to only invest if you are comfortable with the risk and not to over allocate to it.

Five year fund performance table:

(%) As at 24 May 2017-2018 2018-2019 2019-2020 2020-2021 2021-2022
iShares Global Property Securities 1.2 16.6 -19.4 21.9 6.8
Foresight UK Infrastructure Income - 18.4 1.4 7.5 9.2
Ninety One Global Gold -1.4 0.5 83.9 -7.6 -5.9

Past performance is not a reliable indicator of future returns

Source:

FE from 24.5.17 to 24.5.22. Basis: bid to bid with income reinvested in GBP. Excludes initial charge.
1 iShares May 2022
 

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Funds in the property sector invest in property and land. These can be difficult to sell so you may not be able to sell/cash in this investment when you want to. There may be a delay in acting on your instructions to sell your investment. The value of property is generally a matter of a valuer's opinion rather than fact. The Ninety One Global Gold Fund invests in a relatively small number of companies and so may carry more risk than funds that are more diversified. The iShares Global Property Securities Equity Index Fund invests directly in property, which can be difficult to sell and the value is generally a matter of opinion rather than fact. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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