Portfolios investing in shares of companies that can adapt to a high inflationary environment and bonds with high enough yields to help offset its effects on investment returns
High inflation is back and its impact can be devastating. Even at the European Central Bank’s targeted inflation level of 2%, a euro would be worth only 14 cents in 100 years’ time. And with euro-area inflation now at its highest level since the 1950s, investors’ real purchasing power is falling fast.
But here’s the good news: while no fund or asset class can provide a perfect hedge against inflation, there are solutions that may help blunt its impact.
The Challenge
Investment products that aim to provide an explicit hedge against inflation have pros and cons. For example, while index-linked bonds might seem like a default solution, they typically have low real yields and their inflation indexation may fall short of the actual increase in the cost of living.
Investors in liquid assets who want to preserve the purchasing power of their capital while generating realistic levels of income may want to consider:
equity shares of businesses that are likely to hold their real value over time, for instance through a portfolio based on quality companies that can raise their prices and grow their dividends to counter inflation
high-yield bonds that have the potential to generate enough income to exceed inflation over time
That means finding companies whose franchises are strong enough to give them pricing power, and/or issuers whose financials are robust enough to generate reliable cash flows and to maintain resilient balance sheets.
Investment Solutions
AB’s product range includes a variety of equity and bond funds with specific characteristics, for instance, low-volatility, high quality equity portfolios. While these funds do not explicitly aim to beat inflation, they provide access to strategies that we believe may prove relatively resilient in inflationary periods.
The value of an investment can go down as well as up and investors may not get back the full amount they invested. Capital is at risk.
The Portfolio/Fund is meant as a vehicle for diversification and does not represent a complete investment programme. Prospective investors should read the Prospectus, which includes Sustainability-Related Disclosures, and discuss risks and the Portfolio's/Fund’s fees and charges with their financial advisor to determine if the investment is appropriate for them. The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams and are subject to revision over time.
AB offers open-ended Luxembourg-based funds under AB FCP I, a mutual investment fund (fonds commun de placement) organized under the laws of the Grand Duchy of Luxembourg and AB SICAV I, an open-ended investment company with variable capital (société d’investissement à capital variable) incorporated under the laws of the Grand Duchy of Luxembourg.
Not all of the strategies and products we offer are available and/or registered for distribution in all jurisdictions. The sale of funds may be restricted or subject to adverse tax consequences in certain jurisdictions.
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Investors face many strategic questions in today’s challenging landscape.
Find out more about AB’s a range of solutions that aim to meet a variety of investment needs.
