Investment choices for an inflation pessimist?

handful

I'm currently seeing massive inflationary pressures everywhere I look but particularly in my own industry which has usually been a pretty good barometer for the economy (Logistics) I am currently moving a couple of pension pots into a SIPP and I also have a S&S Isa which has done pretty well over the last year and a bit (as you'd expect) My view of inflation seems to be way out of kilter with the BofE and the major financial think tanks but if I go with my own gut feel, is there a strategy for hedging against a period of much higher inflation than seen in the last 10 years? I know this is a very generalised question and depends on attitude to risk etc but just trying to research the options? Thanks

MoJoeGo

Index linked gilt funds?

I suspect it's not that easy, but putting the suggestion out there for critique...

Linton

MoJoeGo said:

Index linked gilt funds?

I suspect it's not that easy, but putting the suggestion out there for critique...

Index linked gilts are expensive, they have 2-3% inflation already included in the price.  So they wont provide protection against "normal" inflation.  However if you want protection against 1970/80s level of inflation then they are the only investment that should do the job.

In the long term equities should outrun inflation.

[Deleted User]

Index linked gilts are a bet that inflation will be higher than expected. If your portfolio calls for bonds and you expect high long term inflation vs that already built into the price then you’ll be better off buying index linked vs standard. 

Like Linton says, stocks provide protection. Commodity stocks in particular have been doing well. 

Having said this, inflation in logistics today tells us what happens now.  We always knew there would be high inflation a year on from first Covid shutdowns.  The views differ on whether its going to persist going forward. We need to design our portfolios so they work well whether the inflation is high or low. 

handful

Deleted_User said:

Having said this, inflation in logistics today tells us what happens now.  We always knew there would be high inflation a year on from first Covid shutdowns.  The views differ on whether its going to persist going forward.

True but when drivers are receiving double-digit pay rises and haulage rates are going up by circa 15-20% they won't be coming down again anytime soon and that cost will resurface somewhere. Then you look at the building trade, tradesmen and materials are not available except for at huge cost. The Catering sector have a staff crisis and can't get chefs for love or money. I could go on. I know eventually the shortage will be overcome by measures such as reopening the borders and more youngsters will be attracted by the £50k+ salaries on offer, IR35 changes mitigated etc but we are a long way away from that at the moment.

SouthCoastBoy

Personally I think we are in for a sustained period of inflation, with one of the drivers of that being the reluctance of CBs to put up rates, which in the long run will cause inflation to run higher. Not all stocks will perform well in an inflation run, so it is important to ensure you select stocks that can out perform inflation, and the one way they can do this is by passing on the cost. We are already seeing that in the telecoms industry, how many people have noticed the CPI+3% by the ISPs?

Thrugelmir

handful said:

Deleted_User said:

Having said this, inflation in logistics today tells us what happens now.  We always knew there would be high inflation a year on from first Covid shutdowns.  The views differ on whether its going to persist going forward.

True but when drivers are receiving double-digit pay rises and haulage rates are going up by circa 15-20% they won't be coming down again anytime soon and that cost will resurface somewhere. Then you look at the building trade, tradesmen and materials are not available except for at huge cost. The Catering sector have a staff crisis and can't get chefs for love or money. I could go on. I know eventually the shortage will be overcome by measures such as reopening the borders and more youngsters will be attracted by the £50k+ salaries on offer, IR35 changes mitigated etc but we are a long way away from that at the moment.

As the fog lifts. May well be people searching for new employment. Furlough has only provided a temporary respite. Likewise easy to forget that that this is a global problem and supply chain disruption is across the board. Over time pressures will slowly ease. 

NedS

Worth a watch:

https://www.youtube.com/watch?v=jKMZOojV0mE

[Deleted User]

Prices are definitely taking off. Sandstone sourced from India has risen 25% in two months. Builders cannot get cement nor timber.
Consequences of Brexit fuel the upward pressure so, while house prices are going to perform strongly in the GB, it may be prudent to place most of the rest of assets elsewhere. That is my strategy, anyway,

[Deleted User]

NedS said:

Worth a watch:

https://www.youtube.com/watch?v=jKMZOojV0mE

Very good.  What’s his name? 

I actually have one of the ETFs he quotes (SCHP), but only about 5% of my liquid portfolio.  The other advantage of TIPs (and other US treasuries) is that during a crash USD tends to appreciate.  

One inaccuracy in the video is when he is disproving the ability of equity to hedge against high inflation.  That is a reference to long term returns while he is showing a plot of valuations during a spike in inflation. 

The other tool he didn’t mention is Preferred/Preference Shares.  But they are complex and vary between jurisdictions. 

Albermarle

Prices are definitely taking off. Sandstone sourced from India has risen 25% in two months. Builders cannot get cement nor timber.

The demand in the building industry from the end customers refurbishing houses with unspent holiday money is at an unprecedented level . If you add a buoyant house sales market and a healthy level of new build housing then you have currently a boom industry . In some cases prices of timber and plastics used has doubled in 12 months .