How to Manage Your Money if Inflation Flares
Jason Bloom, head of bond and alternative exchange-traded funds strategy at Invesco, said industrial metals, especially copper, could rise in the coming years, and not necessarily because of inflation. Copper could benefit from its use in electric vehicles, as well as in wind and solar power generation.
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“We believe that over the next five years it is within reason that the price of copper will double,” he said. He also expects further increases in the prices of oil and agricultural commodities.
“There is a longer-term view that as wealth increases in developed countries, consumers will switch to higher protein levels,” he said, boosting demand for cattle and pigs, as well as corn and soybeans that feed them.
Michael Arone, chief investment strategist at State Street Global Advisors, which manages many ETFs, said: “I think energy and materials stocks represent good value.” State Street SPDR SSgA Multi-Asset Real Return ETF focuses on inflation. It is a collection of ETFs that invest in real estate, commodities and treasury securities protected against inflation. The fund returned 16.9% through June and has an expense ratio of 0.5%.
While Mr Arone says he expects inflation to decline in the years to come, it is worth watching for potential wage inflation. “For me, if the average increase in hourly earnings approaches 4%, that would be worrying,” he said.
Phillip Toews, managing director of Toews Asset Management, an investment adviser with more than $ 2 billion in assets under management, favors a “small” allocation to a commodity index – “maybe 5 to 10 percent” – in clients’ portfolios. Since bonds are vulnerable in times of inflation, Toews says he recommends TIPS, which offer bond security as well as explicit protection against possible inflation.
Switching between asset classes.
Some funds, such as the Fidelity Multi-Asset Income fund, have broad mandates that can provide an internal hedge against inflation. Adam Kramer, manager of the Fidelity fund, says he can invest in stocks, treasury bills, high-quality corporate bonds, high-risk bonds, preferred stocks and convertibles, and he can change his asset allocation where applicable.
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