INFLATION is a character from “Jekyll and Hyde” – while this may be good news for borrowers, as it erodes the value of their debts, it has devastating implications for savers, investors and retirees, by reducing the value of your money. But investing in the right places can be one of the best ways to beat it.
One: Take a hop on the property
Historically, real assets such as infrastructure and real estate have performed better than other areas during spikes in inflation. Indeed, their income tends to increase with the general level of prices.
There are many ways to add real assets to your portfolio, one of them being the iShares Global Property Securities Equity Index fund, which is listed on the Fidelity Select 50.
This passively managed vehicle aims to match the performance of the FTSE EPRA/
NAREIT Developed Index, a benchmark composed of the shares of leading real estate companies around the world. Many of these take the form of real estate investment trusts (Reits), a type of closed-end fund that invests in the actual brick-and-mortar buildings.
“Real estate can act as a hedge against unexpected inflation with the added option of diversification against major equity indices,” says Brett Pybus, Head of Investment and Product Strategy at iShares EMEA.
The portfolio offers a very diversified exposure to different types of real estate companies, including retail, office and residential, although the largest geographic weighting by far is the United States, which accounts for 61% of assets.
The fund fell sharply during the deflationary episode of the pandemic in 2020 losing just over 11% on the year, but then did almost 30% in 2021 when the global economy recovered. In total, it returned 36.82% in the five years ending at the end of April.1
Pybus says 2022 is set for a broader and stronger real asset market recovery, marked by a rapid rebound on 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 information on the outlook for real estate as an asset class, watch our latest Real Estate Investment Outlook video.