With goods such as luxury watches, demand tends to rise as prices do, experts say.
Courtesy of Rolex
Inflation is an insidious threat, a force that eats away at investment returns and erodes savings and purchasing power. Whether rising inflation is temporary, as central bankers say, or something more persistent, increasing prices across the U.S. economy warrant investors’ attention.
“A controlled burn can quickly turn into a wildfire,” says Nancy Tengler, chief investment officer at Laffer Tengler Investments, of the possibility of more lasting inflation.
Barron’s queried a half-dozen investment professionals about inflation hedging—and profiting— strategies. Forget gold, they say, but Treasury inflation-protected securities, or TIPS, are an obvious tool. We highlight four alternatives for investors to consider:
Certain Stocks
Natural-resource stocks are good inflation plays, strategists say, given their positive correlation to inflation. During the great inflation of the mid-1960s to early 1980s, oil and gas, agriculture, and metals and mining stocks outperformed the broad market and can play a role in mitigating the impact of higher prices this time around, says Peter Mladina, director of portfolio research at Northern Trust Wealth Management.
Within natural resources, Tengler likes energy companies, including Chevron (ticker: CVX) and EOG Resources (EOG), agriculture plays Caterpillar (CAT) and Deere (DE), and water company Xylem (XYL).
While many strategists have reservations about cryptocurrencies as an inflation hedge, some say that indirect exposure to Bitcoin, which has a capped supply, makes sense. Tengler recommends Square (SQ), which holds Bitcoin on its balance sheet. For blockchain exposure, she likes the exchange-traded fund Amplify Transformational Data Sharing (BLOK).
Land/Real Estate
“With inflation, you should have some ability to raise rents,” says Christopher Didier, managing director at Baird Family Wealth Group. He prefers multifamily homes, lake properties, and suburban homes over apartments, primary residences, and urban dwellings. He also recommends that clients consider undeveloped land, or industrial land repurposed for development, as well as farmland.
Veblen Goods
Scarcity gets a premium price when inflation kicks in, says Jim Paulsen, chief investment strategist at the Leuthold Group. With goods such as luxury watches, demand tends to rise as prices do—the so-called Veblen effect.
Consider the price of an Audemars Piguet Royal Oak Jumbo 15202ST, which rose 57% in value from November 2018 to November 2020, according to data from Watch Price Trend. Since then, the watch is up 89% to roughly $100,000. In a sign of rising demand for luxury watches, Swiss exports of watches rose 37% from a year earlier, the fastest rate since 2010, Bloomberg data show.
Collectibles
Steve Ivy, CEO of Heritage Auctions, the world’s third-largest auction house, says that over the past year, all categories of the roughly $75 billion global collectibles market (not including fine art) are up significantly, as inflation concerns increase and fiscal stimulus means people simply have more money.
The value of rare coins and comic books has risen by about 20%, while baseball cards are up 15% to 40%, to name a few categories. There are costs to storing collectibles as well as tax and liquidity considerations, so Ivy says investors should plan on holding them for at least 10 years.
Write to Lisa Beilfuss at [email protected]
