Inflation continues to be one of the most pressing concerns on both Main Street and Wall Street. And with little relief expected in the short-term, people who haven’t already padded their portfolios with inflation investments still have time to don a little protection.
For context, America’s inflation rate was already red-hot by May 2021, when it surpassed 5.0%. By the end of the year, the consumer price index’s growth had reached 7%.
Consumers were punished still further in 2022 as Russia invaded Ukraine, sparking (among other things) a massive run-up in crude oil prices that has domestic gasoline prices still rising to this day. CPI growth hit a 40-year high of 8.5% in March, it pulled back only slightly to 8.3% in April, and it could persist as a problem for many months more.
“By now, we are well aware of the supply chain issues and imbalances that caused goods inflation to rise over the last year,” says Liz Young, head of investment strategy at SoFi. “The big headline makers have been prices of used cars & trucks, household furnishings, and various food items, for example.”
But she notes that services data is becoming a larger driver of high inflation. “The reason this matters is that services inflation is a stickier component,” she says, “and one that could prove more difficult to contain.”
Thus, as much as most of us would like to be past this issues, we still need to protect our portfolios from rising prices. Those looking for the best inflation investments can find them in a number of asset classes – equities, sure, but also real estate, commodities and, to a certain extent given the Federal Reserve’s recent hawkishness, bonds.
Here are 11 investments to inflation-proof your portfolio. This list of both stocks and exchange-traded funds (ETFs) offer varying degrees of protection against high inflation, and in some cases could continue to do well even once consumer prices cool down somewhat.
Data is as of May 12. Average price targets and analyst ratings provided by Koyfin.
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UMH PropertiesGetty Images
Sector: Real estateIndustry: REIT (Residential)Market value: $1.0 billionDividend yield: 4.1%UMH Properties (UMH, $19.18) is a real estate investment trust (REIT) specializing in housing communities located across the U.S. And it’s currently on Wedbush’s Best Ideas List.
Wedbush’s BIL is a list of Wedbush’s highest-rated companies, chosen by Wedbush analysts and vetted by Wedbush’s investment committee. If a stock falls more than 25% with respect to the S&P 500 or the Russell 2000, it’s taken off the list.
On Jan. 20, 2022, Wedbush analysts added UMH to their Best Ideas list. This list is made up of Wedbush’s highest-rated companies. Each company is chosen by Wedbush analysts and vetted by Wedbush’s investment committee. And if a company’s stock falls more than 25% with respect to the S&P 500 or the Russell 2000, it’s taken off the list.
When adding UMH to the Wedbush Best Ideas list, Wedbush analyst Henry Coffey (Outperform, equivalent of Buy) said that what “attracts us to UMH is the company’s ability to generate a level of annualized FFO growth over the next 3-4 years that is nearly twice that of its other alternative housing REIT peers, and 2.8x that’s expected to be generated by the typical multifamily REIT.”
Funds from operations (FFO) are a measure of REIT operating performance. And as REITs in general are considered a solid inflation investment (they’re better able to pass on costs to customers than other sectors), UMH Properties’ FFO growth bodes well for shareholders.
The analyst community has high hopes for UMH. According to the seven covering analysts surveyed by Koyfin, the REIT has one Strong Buy rating, five Buys and one Hold – good for a consensus Strong Buy rating. Meanwhile, a 12-month price target of $27.31 implies 42% upside from current levels.
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STAG IndustrialGetty Images
Sector: Real estateIndustry: REITs (Industrial)Market value: $6.1 billionDividend yield: 4.3%Koyfin: Buy, 2/6/3/0/1, $46.45 PT (37% upside)STAG Industrial (STAG, $33.92) is another REIT, this one focused on single-tenant industrial U.S. properties (think warehouses and distribution centers).
While industrial REITs share some of the same hardiness in periods of high inflation, this category has been knocked around of late.
“Industrial REIT shares have been pounded the past week on concerns about supply/demand dynamics and future market rent shifts as concerns grow over the consumer and the pace of absorption by e-commerce tenants such as Amazon and Wayfair,” Raymond James analyst William A. Crow wrote in a May 5 note.
Those difficulties were enough for Crow to trim his 12-month price target, to $42 per share from $47 previously, but he maintained his Outperform rating.
“We view STAG’s portfolio as well diversified across geography, by tenant, and industry segment,” he wrote. “We continue to believe that fundamentals will remain positive for some time, and thus we expect STAG and its peers to deliver attractive FFO, [net asset value] and dividend growth for the next several years.”
For what it’s worth, Stag Industrial’s dividend growth has been something of a crawl, at just short of 3% total since 2018. But this top investment for inflation boasts a high yield north of 4% – and it’s a monthly dividend payer, to boot.
Koyfin currently enjoys a high-conviction Buy rating, according to Koyfin. Of 12 analysts covering STAG, two say it’s a Strong Buy and six say it’s a Buy, while three call it a Hold and one deems it a Strong Sell.
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Freeport-McMoRanGetty Images
Sector: MaterialsIndustry: Metals and miningMarket value: $49.8 billionDividend yield: 1.8%Freeport-McMoRan (FCX, $34.34) is one of the world’s top producers of copper, boasting seven open-pit copper mines in North America alone (some of which also produce gold). The company also operates mines in South America and Indonesia, as well as a small number of oil wells off the coast of California and in the Gulf of Mexico.
In 2021, Freeport produced 3.8 billion pounds of copper (up 19.9% year-over-year), 1.4 billion ounces of gold (+61.1%) and 85 million pounds of molybdenum (+11.8%).
Copper is the third-most consumed industrial metal after iron and aluminum, making it an excellent investment for inflation. Gold, too, is sometimes considered a good hedge amid inflation, as gold is priced in dollars, and inflation erodes the purchasing power of the U.S. dollar.
Admittedly, materials stocks face stiff headwinds right now amid slowing economic activity worldwide, including in China, where COVID crackdowns are slamming on their economy’s brakes. “But we believe the subsequent recovery in most commodities will be very strong given a lack of supply growth that will only be exacerbated by this period of demand weakness, macrouncertainty and rising rates,” says Jefferies analyst Chris LaFemina.
Indeed, LaFemina calls FCX a “Franchise Pick,” believing that copper prices are likely to continue rising over the next three to five years.
“A period of much slower global growth would be a setback and is arguably increasingly likely in the near term,” says LaFemina, who rates the stock at Buy, “but the end of the cycle does not happen until the next wave of projects is sanctioned and developed. This will take a decade to play out, in our view.”
FCX shares earn a consensus Buy rating from the 20 analysts covering it. Six pros call it a Strong Buy, six more say it’s a Buy, six are on the sidelines at Hold, and two call Freeport a Strong Sell. Collectively, they see prices improving by 44% over the next 12 months, per their $49.47 consensus price target.
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Barrick GoldGetty Images
Sector: MaterialsIndustry: Metals and miningMarket value: $36.2 billionDividend yield: 2.0%Canada’s Barrick Gold (GOLD, $20.34) is the second-largest gold miner in the world, at 4.8 million ounces of the yellow metal produced in 2021. Its operations in North and South America, as well as Africa, also include a handful of copper minds that produced about 415 million pounds last year.
“As long as global economic uncertainty and virus fears are part of the market conversation, gold is likely to remain in demand. Barrick has a clean balance sheet,” David Coleman said in February, after Barrick’s fourth-quarter and full-year 2021 results.
The company also announced an 11% hike to its regular dividend, to 10 cents per share, and made plans to pay an additional performance-based dividend – recently announced to be 10 cents per share, payable June 15. Coleman noted that Barrick has more than doubled its dividend since the merger between Barrick and Randgold in January 2019.
Although Barrick Gold is primarily a gold mining operation, CEO Mark Bristow said during the company’s fourth-quarter 2021 earnings call that “copper’s contribution to the bottom line is increasing.” During a period of high inflation, that additional hedge could be useful.
GOLD shares have pulled back hard of late but are still up 7% for the year-to-date. The analyst community thinks the stock has much more room to grow, with a $28.05 price target implying 38% upside from here. Overall, the company boasts 10 Strong Buy calls, nine Buys and five Holds – good for a high-conviction consensus Buy call.
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EOG ResourcesGetty Images
Sector: EnergyIndustry: Oil, gas and combustible fuelsMarket value: $70.6 billionDividend yield: 2.5%Koyfin: Buy, 6/15/8/0/1, $149.27 (24% upside)EOG Resources (EOG, $120.51) is one of the largest independent oil and natural gas companies in the United States, with total net proven reserves of 3.7 billion barrels of oil and oil equivalents.
2021 was a banner year for EOG, which set records for both net income ($4.7 billion) and free cash flow ($5.5 billion) – the cash remaining after a company has paid its expenses, interest on debt, taxes and long-term investments to grow its business. Much of that cash flowed to shareholders in the form of much larger dividends; EOG’s quarterly payout doubled last year, to 75 cents per share, and it delivered two special dividends as well.
The company is going strong in 2022, too, up 36% year-to-date. And yet, given that the sector seems a still viable investment given high energy inflation, the pros think EOG still has another 24% in upside over the next 12 months (and not including any regular or special payouts). It’s largely viewed as a Buy across Wall Street, earning six Strong Buys, 15 Buys, eight holds and one Strong Sell.
CFRA’s Stewart Glickman is in that crowded Buy camp.
“The company has taken steps to insulate itself from rising cost inflation and has 90% of its drilling rig needs for 2022 locked in at pricing which is more favorable than that of ’20 or ’21,” he says. “We see EOG continuing to be conservative on [capital expenditures], prioritizing free cash flow and returns to shareholders.”
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ConocoPhillipsGetty Images
Sector: EnergyIndustry: Oil, gas and combustible fuelsMarket value: $128.8 billionDividend yield: 1.9%ConocoPhillips (COP, $99.60) is one of the largest oil producers in the United States, including the largest producer in Alaska. And like many other E&P firms, it is coming off a stellar 2021 – the company flipped to an $8.1 billion profit from a $2.7 billion loss in 2020.
Most energy companies have enjoyed the waterfall effect of rising oil prices in 2022, and Conoco is no different. COP shares are up 38% year-to-date, and were even higher until very recently.
“Investors we speak with believe in and appreciate Conoco’s three tier capital returns program that is driven by solid operations from continuously upgraded assets,” says Truist analyst Neal Dingmann (Buy). “The company has been one of the more active large E&Ps in the M&A market not only adding well timed, attractive assets from Shell (SHEL) but also selling mature and other noncore assets.
Biju Berincheril (Positive, equivalent of Buy) lists several reasons to be bullish on COP shares, including an “increased cash return profile and operating synergies/cost reductions on recently acquired Permian properties.”
At the moment, Koyfin-surveyed analysts view ConocoPhillips as one of the top energy stocks to buy now. Its consensus Strong Buy rating comes from nine Strong Buy calls and 14 Buys versus just three Holds and one Strong Sell.
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AlcoaGetty Images
Sector: MaterialsIndustry: Metals and miningMarket value: $10.1 billionDividend yield: 0.7%Pittsburgh-based Alcoa (AA, $54.58) is one of the largest aluminum producers in the world, with expectations to ship 48 million to 49 million dry metric tons of bauxite, 14.2 million to 14.4 million metric tons of alumina, and 2.5 million to 2.6 million metric tons of aluminum in 2022.
Indeed, the company’s founder, Charles Martin Hall, discovered the smelting process used by every aluminum producer in the world today.
The company’s shares have been under fire of late despite a strong first-quarter earnings report in April that saw net income more than double year-over-year. One of the concerns: Alcoa projected lower Bauxite shipments (by 1 million tons) for the full year thanks to both changes in the bauxite market chalked up to the Russia-Ukraine conflict, as well as its decision not to sell to Russian customers. A sharp drop in aluminum prices of late has weighed on shares.
Regardless, the analyst community maintains a fairly high opinion of Alcoa. It enjoys a Buy consensus rating courtesy of two Strong Buys, four Buys and seven Holds. And those pros who do believe in AA seem to think a violent recovery in shares is imminent, given a $91.75 price target implying 68% upside.
“We view Alcoa as a well-run company with a strong track record in its industry,” writes Argus Research, which rates the stock at Buy thanks to an improving balance sheet, among other drivers.
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SPDR S&P Metals & Mining ETFGetty Images
Asset class: EquitiesCategory: Natural resourcesAssets under management: $2.5 billionSEC yield: 0.5%Net expense ratio: 0.35%The SPDR S&P Metals & Mining ETF (XME, $48.79) is an index fund that attempts to mimic the results of the metals and mining segment of a broad U.S. composite index. If you believe metals and mining companies could be among the best investments for inflation, XME is a great way to buy several of them at once.
One way this ETF sticks out is that it’s equal-weighted. Rather than market cap-weighted funds, where the bigger the stock, the bigger the allocation, XME weights all stocks equally every time the fund rebalances, regardless of company size. Of course, stocks move up and down between rebalancings, so at the moment, top holdings include steelmaker Steel Dynamics (STLD) and coal company Arch Resources (ARCH) at roughly 5.5% of assets apiece.
The portfolio is heaviest in steelmakers by a wide margin, at 45% of all assets. That’s followed by double-digit holdings in coal and other consumable fuels (15%), gold (12%) and aluminum (12%).
Just remember: XME will also be vulnerable to economic slowdowns, and can also be dragged lower by general weakness in equities. China’s COVID lockdowns, for instance, have recently pulled the fund sharply lower after its red-hot 2022 start. It’s up about 5% year-to-date, versus 40%-plus gains as recently as mid-April.
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Invesco DB Commodity Index Tracking FundGetty Images
Asset class: CommoditiesCategory: Commodities (Broad basket)Assets under management: $4.5 billionSEC yield: N/ANet expense ratio: 0.85%If you’re looking for exposure to commodities without investing in equities, you can consider the Invesco DB Commodity Index Tracking Fund (DBC, $27.65). This futures-based ETF allows investors to harness commodities ranging from crude oil and precious metals to wheat and sugar, and everything in between.
DBC tracks the DBIQ Optimum Yield Diversified Commodity Index Excess Return, which is made up of futures contracts on the world’s most heavily traded physical commodities. At the moment, NY Harbor Ultra-Low Sulphur Diesel (ULSD) is the top holding at 16% of assets, followed by gasoline (13%), Brent crude (13%) and West Texas Intermediate crude (12%).
DBC is up nearly 50% year-to-date. While some of its strength can be chalked up to a different blend of commodities than what’s represented in XME’s stocks (namely, DBC is heavy in energy commodities), it’s also being held aloft by continued strength in commodity prices, while XME’s holdings are in part being dragged by broader market selling.
Investors who enjoy simplicity come tax time might want to think carefully about buying this ETF, however. DBC issues an annual Schedule K-1 tax form, which adds a bit of complexity to each year’s filing.
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United States 12 Month Oil FundGetty Images
Asset class: CommoditiesCategory: Commodities (Focused)Assets under management: $139.0 millionSEC yield: N/ANet expense ratio: 0.90%If you want to invest in energy inflation, you can do so through the United States 12 Month Oil Fund LP (USL, $39.41).
The Russia-Ukraine conflict is putting quite the floor underneath oil prices, helping the commodity remain elevated even amid worries about economic growth in China, Europe and elsewhere. And if those economic headwinds dissipate while the war continues, USL could enjoy still more gains on top of a gaudy 68% year-to-date return.
The USL is an exchange-traded security that’s meant to track the daily price movements of West Texas Intermediate, or WTI, crude oil. And it does so through futures contracts. But unlike the much larger United States Oil Fund LP (USO), which primarily invests via near-month futures, USL invests across near-month futures, and futures across the next 11 months.
It’s an admittedly imperfect solution to trying to track oil prices, as 12 months’ worth of futures contracts simply won’t look exactly like spot oil prices. But it provides more accurate exposure than the aforementioned USO, and is a more direct way to play oil than via the equity market.
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Vanguard Tax-Exempt Bond FundGetty Images
Asset class: Fixed incomeCategory: Municipal bondsAssets under management: $15.6 billionSEC yield: 2.6%Net expense ratio: 0.05%While bonds are a hard sell as long as the Federal Reserve continues to signal aggressive rate hikes, one bond fund that might be worth a look is the Vanguard Tax-Exempt Bond Fund (VTEB, $49.44).
This fund tracks more than 6,000 bonds within the S&P National AMT-Free Municipal Bond Index, which is made up of investment-grade tax-exempt U.S. municipal issues. And because defaults on muni bonds are rare, they can maintain a level of stability during times of inflation. Indeed, they’ve actually beaten inflation in 18 of the past 25 years.
Morningstar analyst Lee Ahn Tran says VTEB’s “conservative profile has paid off during bouts of volatility like the late-2018 high-yield sell-off and the coronavirus shock.” She adds that since inception through December 2021, the fund has outperformed the category average by 41 basis points annualized. (A basis point is one one-hundredth of a percentage point.)
“Over the same period, its risk-adjusted return metrics (measured by Sharpe and Sortino ratios) are also better than the category norm,” she says. “Much of this outperformance can be traced to its razor-thin expense ratio and broad scope.”