3 ways to take on inflation this year

PICKING investments to beat the rapid price rises we have felt in the past year has been an uphill battle.

With inflation surging since the start of 2022 - and reaching a peak of 11.1% in the UK last October - investments of any kind have struggled to keep pace. Inflation is now retreating but remains stubbornly high and the reality is that there is no sure-fire way to grab a return that will match price rises.

Some assets have shown resilience against inflation, however, and many have managed to claw back a lot of ground this year. With price rises predicted to fall back further this year investors will be hopeful that their portfolios can outrun inflation in the year ahead.

All options involve risk and prices can fall, but here are some investment ideas to take on - and with luck beat - inflation in the year ahead.

Look to global shares

Last year was tough for investment assets overall but some which have recovered well and put in impressive bursts of performance this year.

Among major stock markets, both Europe and Japan have delivered returns far above inflation since the final months of 2022. The problem for investors is that they can’t know in advance which regions will perform.

That’s why investing globally makes sense, because it gives you exposure to multiple regions so that you have a chance of capturing bursts of performance wherever they arise.

Most global funds will allocate money to different regions broadly in line with global indices, so you’ll get more exposure to the biggest markets and less to the smaller ones. It means they will invest most heavily, as much as 60%, in the giant US market.

By spreading your money more evenly across the world you’ll have a greater chance of capturing the performance of inflation-busting markets when it pops up.

You could choose the Schroder Global Recovery Fund, which appears on our Select 50. The fund differs from your typical global fund in a couple of ways. Firstly, it gives higher-than-normal exposure to major markets beyond the US, with companies from Japan, the UK and the eurozone accounting for around 64% of the portfolio. Just 29% come from the US.

Secondly, the fund has a value bias, concentrating on companies which look cheap on various measures. It also currently yields 4.3% from dividends, which can underpin returns in the future.

The allure of gold

Gold is the most traditional hedge against inflation there is. It’s been a store of value for thousands of years and has broadly matched inflation over very long periods.

It doesn’t always work in the short term - the metal confounded investors last year by underperforming despite rapidly rising inflation. This year has been a different story though and investors have once again sought out gold - bumping its price in the process.

The iShares Physical Gold ETC is a simple way for investors to get exposure. It disappointed those looking for a hedge against inflation last year, losing 0.5%, but has bounced strongly in 2023, adding 8.5% year-to-date. The fund also features on our Select 50.

Gold is volatile and makes the most sense used at the margins of your portfolio as a hedge if price rises remain high.

Hunting for dividends

Dividends can be a comfort in difficult markets and provide some ballast to your return. As economic performance worsens, investors will often turn to stable dividend paying companies to shore up their returns.

Right now, the forecasts for economic growth are tough and major economies are likely to flirt with recession in the next 12 months. In that scenario, dividends can be vulnerable if company earnings deteriorate.

The latest forecasts, however, are for dividends to grow this year. The Janus Henderson Global Dividend Index last month forecast underlying dividend growth of 5% in the next 12 months. That’s below current levels of inflation but could rise above price rises if they continue to fall back.

The Fidelity Global Dividend Fund seeks out companies paying strong and stable dividends and can roam the world to find them. The fund has posted 5.8% growth in the past year, despite the widespread falls in 2022, and returns are helped by a dividend yield of 2.7%. Please remember past performance is not a reliable indicator of future returns.

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. Investments in emerging markets can be more volatile than other more developed markets. 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.