INFLATION is a ‘Jekyll and Hyde’ character – while it may be good news for borrowers, as it erodes the value of their debts, it has devasting implications for savers, investors and retirees, chipping away at the value of your money. But investing in the right places can be one of the best ways to beat it.
One: Take a punt on property
Historically, real assets such as infrastructure and property, have performed better than other areas during spikes in inflation. This is because their income tends to rise along with the general level of prices.
There are lots of ways to add real assets to your portfolio with one option being the iShares Global Property Securities Equity Index Fund, which features on the Fidelity Select 50.
This passively managed vehicle aims to match the performance of the FTSE EPRA/
NAREIT Developed Index, a benchmark that consists of the shares of leading property companies from around the world. Many of these take the form of Real Estate Investment Trusts (Reits), a type of closed-ended fund that invests in the actual bricks and mortar buildings.
“Real estate can act as a hedge against unanticipated inflation with the added option of diversification versus major equity indices,” says Brett Pybus, head of iShares EMEA Investment and Product Strategy.
The portfolio offers a highly diversified exposure to different types of property companies including retail, office and residential, although by far and away the largest geographic weighting is the US, which accounts for 61% of the assets.
The fund fell sharply during the deflationary episode of the pandemic in 2020 losing just over 11% in the year, but then made almost 30% in 2021 when the global economy recovered. In aggregate it has returned 36.82% in the five years to the end of April.1
Pybus says that 2022 is set for a broader and stronger real asset market upswing, marked by a fast rebound upon reopening and a slow rebuild to recover lost capacity. “We see the cyclical rebound, technological change and the response to climate change as three dominant drivers of the outlook.”
For more views on the outlook for property as an asset class, watch our latest Investment Outlook video on property.