A fully flexible way to invest
4 minute read
As the cost of living crisis dominates the headlines in the UK, inflation continues to eat away at the real value of savings. Here, we consider the investments we believe to be best suited to tackle the high inflationary environment.
Who's it for? All investors
The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.
People around the world are feeling the pinch from higher energy bills, supply chain disruptions, and a hangover from the pandemic. However, price pressures in the UK are expected to be worse and longer lasting due to a tight jobs market, a plunging pound, and higher inflation expectations. As inflation moves higher, the real value of savings continues to be eroded.
So, what can investors do to protect themselves from inflation? Here, we showcase some of the funds we think are best placed to weather a higher inflationary environment.
While there is no one single fund that will perform well in an inflationary environment, a diversified portfolio is a good way to go. If ever there was a time when you want to be diversified, it’s during a period of inflation, when you may want exposure to both bond and equities to deliver returns.
One option you may like to consider is one of our five Ready-made Investment funds. You don’t need to be an expert – our team of professionals create and monitor our funds. The Ready-made Investments are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These Barclays multi-asset funds invest in passive funds (a fund which tracks a market index, or a specific market segment, and usually has lower fees than the equivalent actively managed fund) across a range of asset classes and regions, offering a globally diversified solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.
Alternatively, you may want to consider a pure equity fund. As prices rise, you want to be invested in companies that can increase the price of the goods and services they offer. This means companies which have very strong brands, which gives them the power to pass those price increases onto the customer. Once such fund is the Lindsell Train UK Equity Fund which invests in just these types of companies – large, strong and powerful brands, such as Diageo, Unilever, and Burberry.
The lead fund manager, Nick Train, looks for high quality companies with durable business models and strong brands, that produce high levels of cash flow. He then invests in these companies for the very long term. The backbone of this fund is the distinct and robust investment process that sits behind every single investment. And it’s the same process that’s been followed for nearly 20 years which is why we hold it within our list of funds – it gives us confidence about what to expect from this fund going forward.
Another option you may like to consider is a fund which invests in those companies that require little capital investment. Here, we are talking about technology and communication services companies as opposed to the likes of car manufacturers for example which are capital intensive (require large amounts of investment to produce a good or service). These so-called ‘capital-light’ businesses should theoretically be inflation winners.
The Loomis Sayles US Equity Leaders Fund has just over half of their portfolio invested in the technology and communication services sectors. The fund invests in shares of US companies, with an emphasis on keeping turnover to a minimum and therefore only investing in the shares of companies which the team believes have strong potential to outperform over the very long term. They do this by looking for what they call ‘high quality’ businesses. These companies typically provide products or services which are difficult to replicate, which means competitors tend to find it difficult to enter these markets and compete.
Alternatively, you could go ‘all-in’ on technology with the Polar Capital Global Tech Fund. The aim of the fund is to deliver long-term capital growth by investing in technology companies and/or companies where technology is a fundamental part of their operations. But what differentiates the approach at Polar Capital from other funds is their focus on the ‘next generation of winners’.
The team are looking to avoid the ‘legacy’ technology companies and seek out those companies which are growing their earnings at a considerably higher rate than the market average. And the team do this by identifying overarching themes which are in their growth phase, such as cybersecurity, cloud computing, and digital payments.
Instead of having an active manager who tries to pick investments to beat the markets, tracker funds – also known as passive or index funds – simply follow the overall performance of a particular market or index, such as the FTSE 100.
These funds are significantly cheaper than the equivalent actively managed funds, and offer an attractive cost-effective option to use as a key part of a diversified portfolio. But it’s important to understand that, unlike an actively managed fund, a tracker can never outperform the market or index it is linked to – as the name suggests, it will only ever follow it.
The iShares US Equity Index Fund is one option here. The fund, which has an ongoing cost of just 0.05%, tracks the US stock market where the capital-light sectors of technology and communication services make up about a third of the index.
As always, these are our current opinions but the future, as ever, is uncertain and outcomes may differ. We don’t offer personal investment advice so if you’re unsure you should seek that independently. Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.
The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.
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