Three ways to inflation-link your ISA

With the increasing cost of living putting a huge strain on everyone’s finances, inflation is one of our biggest concerns right now.

The prices of petrol, food, clothing and even second-hand cars have soared due to a combination of energy price hikes and global supply chain issues. The Consumer Prices Index, which measures the average price of goods and services, rose to 5.5% in January – its highest level for almost 30 years.

Economic predictions

The bad news is that many economists are predicting inflation could rise further this year with Russia’s invasion of Ukraine triggering volatility in financial markets.

Andrew Goodwin, chief UK economist at Oxford Economics, expects CPI inflation to peak above 8% in April and to average 6.5% in 2022. “Consumers will feel the impact of higher food and oil prices relatively quickly,” he said. “Our modelling suggests the average fuel price could rise to £1.57 a litre in the next few weeks from its current level of around £1.50.”

Inflation concerns

Inflation also means your savings and investments need to work harder – just to keep pace with increases in the cost of living. So, what can you do to improve your chances of earning a decent return in the current environment and cope with rising prices?

According to Alistair Wittet, a manager of Comgest Growth Europe ex UK, there is no better shield against rising rates than the sound balance sheets of quality growth companies. “Many European quality growth companies are largely shielded from the impact of strong inflation and rising debt charges,” he said. “Their management teams, therefore, can continue to focus on executing their growth strategies, such as developing the next ground-breaking drug in the case of Novo Nordisk, or the next generation of lenses as per EssilorLuxottica.”

Here we take look at three investment funds that might be worth considering if you want some inflation-linking in your portfolio.

TIME: Commercial Long income

The aim of this fund is to provide a consistent income stream with some capital growth prospects by acquiring properties with long leases. These assets can include commercial freehold ground rents and commercial freehold property. Interestingly, around 94% of rent reviews are linked to inflation or have a fixed uplift, rather than being subject to open-market negotiation. The majority of the rent reviews are also upwards only. This helps to provide some degree of clarity over future income, which is useful in the current environment.

In their latest commentary, the fund’s managers Nigel Ashfield and Roger Skeldon pointed out that the portfolio doesn’t have any properties without tenants. “Increased levels of inflation remain a concern for investors, especially in a period where rental growth in many sectors of traditional commercial property remains uncertain but one of the key features of long income is the comfort provided by structured rent reviews,” they wrote.

Jupiter Gold & Silver

Precious metals are often regarded by investors as a hedge against inflation – and one way to gain exposure to this area is through the Jupiter Gold & Silver fund. Managed since its launch by Ned Naylor-Leyland, it can invest in gold and silver bullion, as well as gold and silver mining companies. The portfolio’s dynamic approach enables it to be positioned in a way that best suits the current market conditions. Against an ever-changing backdrop, this can be attractive.

According to Jupiter, one of the reasons to allocate to gold and silver is for exposure to assets with the potential to perform in a more inflationary environment. Ned believes the current situation looks positive for the fund. “Firstly, the Fed is looking as hawkish as it can be,” he said in an update. “Secondly, market expectations of inflation halving in the second half of 2022 are as optimistic as one could imagine. Thirdly, the Ukraine conflict has not yet reached its endgame.”

First Sentier Global Listed Infrastructure 

This fund aims to achieve an investment return from income and capital growth over the medium to long term, defined as being at least three years. It invests in shares of companies that are involved in infrastructure around the world – and is well diversified in terms of sector and country exposure. The industries covered include utilities (water and electricity), highways and railways, airports services, marine ports and services, as well as oil and gas storage and transportation.

The fund has been managed since launch by Peter Meany, who is a respected pioneer in the world of infrastructure investment. In a recent update, he highlighted the fund’s investment in a range of global listed infrastructure assets including toll roads, airports, railroads, utilities, pipelines, and wireless towers. “These sectors share common characteristics, like barriers to entry and pricing power, which can provide investors with inflation-protected income and strong capital growth over the medium-term,” he stated. 

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.

Published on 09/03/2022