Six ways to make money while inflation is at 9.1%

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Real estate investment trusts

Conservative investors may prefer more defensive investments such as investment trusts that own real estate. These funds are particularly attractive when their rental income is linked to inflation.

Analysts at broker Numis said they were in favor Reit Income Supermarket and LXi REIT for this reason. Broker Colette Ord said: “This should help the funds generate healthy rental growth in the current inflationary environment. Supermarket Income Reit has 85% of its current rent tied to inflation.

Infrastructure funds

Wealth manager Brewin Dolphin’s Rob Burgeman said investors should also consider “real” assets in the infrastructure sector, as the essential nature of assets such as bridges and roads meant they could hold their value.

“The 3i infrastructure The fund consists of a wide range of assets in Europe and Asia,” he said.

Indexed bonds

Investors can also look to government-issued index-linked bonds, also known as gilts. They seem simple at first glance: the income they pay increases with inflation, as does their value at maturity. But their way of behaving is more complicated. Last year, the Telegraph’s stock-picking column Questor asked Hamish Baillie de Ruffer, a fund manager who manages several portfolios designed to fight inflation, to explain:

“What determines the price of these ‘linkers’ is the ‘real’ interest rate,” he said. “Real interest rates are interest rates relative to inflation – if, for example, the bank rate is 3% but inflation is 1%, the real interest rate is 2% Now, of course, we are in the opposite position: inflation is higher than interest rates.

But it is not only a negative real interest rate that constitutes a favorable environment for indexed gilts. Instead, Baillie said, “you want real interest rates to come down.”

This is another way of saying that you want inflation to rise faster than interest rates. This is precisely what we can expect if inflation takes off: the Bank of England will be reluctant to do what it normally does to counter inflation – raise interest rates – because indebted consumers, businesses and the government itself can bear the burden of their borrowing only if interest rates remain low.

Which indexed gilts to buy? Here’s more from Questor:

“Short term” securities close to maturity offer little yield because inflation may not affect their value much anyway in just a year or two. Longer-maturity gilts offer the most inflation sensitivity, but longer maturities are more volatile, so we’ll go for the middle ground: a bond that matures in 2036.

Linkers are available from brokers such as Hargreaves Lansdown or directly from the government debt management office. Even outside of an Isa or Sipp, capital gains are tax exempt, although the income is taxable.

Investors can also access indexed bonds through funds. Burgeman pointed out the Capitalization trust. “It is managed by City veteran Peter Spiller and offers exposure to a range of assets including bonds, infrastructure and property, private equity and debt,” he said.

See also  Market resilience

Gold

The yellow metal is traditionally considered a safe haven during periods of high inflation or market volatility. It had a strong rally earlier this year, climbing as much as 13% to hit $2,039 (£1,634), but its recent plunge has wiped out its 2022 gains.

Popular Wealth Preservation Investment Trusts such as Ruffer Investment Company completed their gold positions. The metal now represents a tenth of the portfolio.

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Gavin Trodd of Numis said Ruffer is a reliable choice when markets are volatile or falling. “During the global financial crisis, the value of its net assets increased by 26% in 2008, compared to a 30% drop in the FTSE All-Share Index. We believe the fund can be considered an attractive portfolio diversification tool. »

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