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Questor: the five investments you need to beat inflation

·3-min read
inflation
inflation

Inflation’s surge to a 40-year high has caused widespread alarm. Anyone with wealth could see its value decline significantly in real terms. The Bank of England has even said inflation could reach 10pc.

Since its launch last year, Questor’s Wealth Preserver portfolio has sought to overcome inflation and avoid steep falls by holding a diversified range of 28 assets. But some investors, especially those who are only now considering the threat to their savings, may want a simpler starting point. Here we suggest a five-investment portfolio to get you going.

Shares

Companies that can pass rising costs on to their customers are best placed to cope with high inflation. Demand for tobacco has historically been less affected by price rises than almost any other consumer product, so British American Tobacco is our chosen stock.

The company continues to invest in less harmful products such as e-cigarettes, which adds to its long-term growth potential. These products generated a 51pc rise in sales last year. It has also reduced its debts to strengthen its financial position, while a yield of 6.3pc suggests that it offers good value for money.

Commodities

Commodities have a long record of outperformance in periods of high inflation. Investing in a company that produces a single commodity, however, would be risky so we’ve picked a diversified miner in BHP. Its price-to-earnings ratio of 14.5 suggests that it offers a margin of safety.

The company continues to align its portfolio with long-term global growth trends. For example, it is investing heavily in a major potash project. This is a key component of fertilisers so the investment increases BHP’s exposure to a growing world population and changing diets. Its interests in copper and iron ore position it to benefit from the shift to a net-zero economy.

Infrastructure

Tangible assets such as property and infrastructure should also offer a sound hedge against inflation. Historically, they have risen in value during periods of rapid rises in the cost of living.

The renewable energy fund Greencoat UK Wind invests in onshore and offshore wind farms in Britain. It aims to maintain the value of its assets on an after-inflation basis over the long run while growing its dividend in line with the retail prices index measure of inflation. It currently yields 4.6pc and trades at a premium of 5pc to its net asset value.

Gold

Buying gold is arguably investors’ most popular response to high inflation. Since antiquity it has enjoyed a reputation as a store of value and should make a useful ally during the current era of rampant prices rises.

An exchange-traded commodity (ETC) fund such as the iShares Physical Gold ETC offers a simple and efficient means to gain exposure to the precious metal. We must acknowledge that gold’s progress could be checked by impending interest rate rises in America, which increase the appeal of income-producing assets such as cash relative to gold. But the metal still deserves a place in a multi-asset anti-inflation portfolio.

Investment trusts

The stock market as a whole has a solid long-term record of beating inflation, albeit interspersed with bouts of volatility, and recent profound shifts in investors’ mood may offer us the chance to buy certain shares cheaply.

Over the past few months sentiment has swung against “growth” stocks and into “value”. As a result investment trusts that specialise in high-growth companies have suffered.

Scottish Mortgage is the obvious example but we will opt for its less high-octane and more diversified stablemate, Monks, which typically holds more than 100 stocks from across the world. It aims to deliver long-term capital growth and has outperformed its benchmark index over the past decade.

It currently trades at a 7.8pc discount to its asset value, which suggests that it offers good value for money.

Questor says: buy

Tickers: BATS, BHP, UKW, SGLN, MNKS

Share prices at close: £34.33, £25.99, 156.6p, £28.81, 958p

Read the latest Questor column via telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 5am.

Read Questor’s rules of investment before you follow our tips.

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