Inflation? Deflation? Where are we?
There has been a lot of talk in the markets about inflation lately.
- Certain food prices are 30% to 50% higher than a year ago
- Commodity prices like corn, lumber and cotton are hitting new highs
- Supply chain disruption due to the pandemic has meant fewer goods and services and higher prices on many everyday items
- Gas prices rise due to the imbalance in the supply-demand equation. There is a major shortage of gasoline across many states in the U.S. right now
- Services like travel will see an increase in price as demand returns while commodity prices (for ex. Food) will also rise from their Covid lows
- There is a lot of money getting pumped into the economy with the stimulus along with the expected cost of the infrastructure package
If history is any guideline, inflation usually sneaks up on economies … hidden and emerging slowly … before anyone has a chance to plan or react.
How to make sure invisible inflation doesn’t leave you broke when you can least afford it
Retirees or those closing in on retirement have the most to be concerned about when it comes to inflation.
Once you reach “fixed income” status … it’s harder to offset inflation with higher a higher paycheck. You don’t have the advantage of wage increases adjusted for inflation that many employees get year after year.
How do you protect yourself against what you can’t see and what your government refuses even to acknowledge?
The good news … there are investment strategies out there that can provide protection
Investors are starting to turn to securities to own that help protect their portfolio against inflationary pressures and earn a steady income.
Here’s a look at 3 investments that beat inflation:
BlackRock Resource & Commodity Fund (NYSE: BCX)
Commodities are traditionally known for their wild price swings but the BlackRock Resource and Commodity Fund (BCX) can serve as a safe haven, especially during inflation. The production of commodities is local but its consumption is international. As such commodities provide diversification, making them a great hedge against inflation.
BCX is one of the top picks in the sector because the fund invests in commodities and raw materials used in production. During inflation, industries like mining and agriculture tend to benefit from the increased prices pushing up the value of these materials. BCX’s allocation is 33% in metals and mining stocks, 37% in energy stocks and 29% in agricultural stocks. The fund also has international exposure of 58% as many of these resources are produced outside the United States.
BCX’s 5.2% yield makes this investment a great choice for income-focused investors.
XAI Octagon Floating Rate & Alternative Income Trust (NYSE: XFLT)
With inflation creeping its way into the economy, closed-ended funds like XFLT are now are on investors’ radars. The XAI Octagon Floating Rate & Alternative Income Trust has become one of the more popular CEF plays because of its 10.1% yield and monthly distribution. This fund is made up of collateralized loan obligations (CLOs) and senior-secured loans (SSLs) which have increase the value of the fund in recent months. As the economy recovers, this rally is set to continue.
Greater economic activity fueled by government stimulus will be a boon for XFLT. This is because CLOs and SSLs have a lot of exposure in the U.S. economy but remain insulated against companies that go bankrupt. Given the short call date and 5-year maturity, XFLTs are protected against rising interest rates and credit risks as well. Adding to this, SSLs as the name suggests, are secured by the assets in a company.
As inflation rates rise in the coming months, XFLT is poised to be a major beneficiary of the economic recovery.
Enterprise Products Partners (NYSE: EPD)
With commodity prices set to take off this year, Enterprise Products Partners is a stock that investors should have on their watchlist. The company specializes in the transportation, processing and storage of oil and natural gas. It also operates as a master limited partnership (MLP), meaning that it treats stockholders and direct owners of the asset. This allows for some tax benefits. But more importantly, EPD also favors toll-taker contracts which provide protection against wild commodity price swings.
Enterprise Products Partners is a highly diversified business and continues to expand through acquisitions. EPD stock is up a whopping 66% from its March lows and the low debt balance also gives it plenty of room for future growth. Adding to these tailwinds is the company’s dividend of 7.8%. With a history of dividend increases in the last 24 years EPD is just a year away from Dividend Aristocratic Status. This makes the stock a great play for income-focused investors.
If you’re looking for a good energy stock this year, Enterprise Products Partners is your best bet.
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