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How to hedge against inflation: We asked the experts

·Markets Reporter
·3-min read
In this article:
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Watching inflation erode purchasing power is frustrating. From consumer products to housing and gasoline — products and services are going up in price in this inflationary environment. Yahoo Finance asked several stock market experts: How can investors hedge against inflation?

These are some of the strategies they highlighted:

Equities

"Equities are traditionally viewed as an inflation hedge because it is expected that a company will be able to offset rising input costs by charging more for their products and services. In this environment, we would expect that most companies will see their revenue and earnings rise with inflation over the course of time," Timothy Chubb, CIO at Girard, a Univest Wealth Division, told Yahoo Finance.

"During periods of high inflation investors might consider having a higher allocation of stocks in their portfolio. Since higher inflation has been a long time coming, many assets have ‘priced in’ rising inflation to their valuation," added Chubb.

Commodities in equity markets

"If you believe the markets are going to kind of power through inflation over the medium term, then I think you want to be long in things like commodity sectors within U.S. equity markets, potentially small cap equities, or some exposure to metals and mining and things of that nature," Stuart Kaiser, UBS head of equities, told Yahoo Finance live

"If you're worried that inflation could trip up the [market] rally, then you're looking at downside trades," said Kaiser. "Most investors we've spoken to are really focused on the tech sector for that, wether that's the Nasdaq (^IXIC), semis, large cap S&P (^GSPC) tech, and things of that nature," added Kaiser.

Financials

"One of the areas in which we have continued to be overweight is banks and financials. They benefit from higher rates, they benefit from a steeper yield curve," Ellen Hazen, portfolio manager at F.L. Putnam Investment Management, told Yahoo Finance Live.

"You have JPMorgan (JPM) and Bank of America (BAC), both trading at under 2x book value, and mid-teens on earnings," she added.

Hazen also noted banks will benefit from loan growth and strong credit quality, thanks to a growing economy and increasing GDP.

Real assets

Hazen is an advocate of looking at real assets, "particularly areas like timberland, infrastructure, real estate," said Hazen.

"We're overweight real estate investment trusts (REITs), and we're looking at infrastructure funds as well, as a way to protect against higher inflation," she added.

Hazen went on to say, "You want to be careful of owning too many companies that are exposed to low wage workers, b/c those wages are going up double digits as labor has become so scarce."

Long $TIP/Short $IEF

"The cleanest way I know is simply to buy the Inflation Protected Treasury Securities (TIPS) and short traditional Treasuries (IEF). That's the bond market taking care of that for you and you can execute it easily using ETFs," JC Parets, founder of allstarcharts.com, tells Yahoo Finance. TIPS are government bonds whose value increases with inflation.

"Anything beyond that, is speculation," says Parets. "The gold (GC=F) bugs love to lie to people that gold is a good hedge against inflation. The last year certainly proved that to be hilariously wrong," he said.

"Some say Bitcoin (BTC-USD) and/or other crypto currencies. Traditionalists say just own stocks ... In my opinion, you're just betting on the value of those assets themselves rather than some magical 'hedge' against inflation."

Parets suggests: "If you want to buy gold and think it goes higher, buy gold - don't worry about inflation. If you want to buy Crypto - then buy crypto - don't worry about inflation. And if you want to own stocks - buy stocks - don't worry about inflation."

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