As energy prices soar and the recovery falters, it could be time to put your portfolio on the defensive Beware a 1970s-style inflation flare-up

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Looks from the 1970s, such as flares and tie dye, have made a regular comeback.

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But another trend of that era, rising inflation, is only now making its comeback, threatening to share values ​​and fixed income payments from government bonds, or gilts.

Is this a sign of a shift in your investing style to a more defensive stance, especially in light of the other threats now emerging?


Warning signs: 1970s-style inflation is making its comeback, threatening shared values ​​and fixed income payments from government bonds, or gilts.

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The answer is ‘yes’, although it does not require flying in cash as it once was. Today’s fashion is for a more nuanced approach – some cash, some bets on various stocks and perhaps index-linked bonds.

The long list of warning signs for your portfolio include rising oil and gas prices, a faltering Covid recovery, and a global decline that will be fueled by the failure of Chinese property developer Evergrande, which has total debt of £220 billion.

Another developer Fantasia missed this week.

This must be the moment when central banks such as the Bank of England and the US Federal Reserve act as the custodians of the economy, the superheroes in suit.

Yet central bank owners persist (publicly, at least) that inflation is ‘temporary’, although labor has acquired pricing power, which, as economists say, will raise wages.

Could this mean central banks are messing around with key decisions on interest rates and withdrawal of quantitative easing? Some people are afraid that this might not happen.

David Combs, head of multi-asset investing at Rathbones, argues that ‘the likelihood of policy errors by central bankers now is the highest in my working life’.

As a result, it is transforming the portfolio of its clients.

He says: ‘I have a lot of cash, some of which is put to join our tech stocks when their prices fall. I am buying TIPS – US Treasury Inflation-Protected Securities.’

A year ago, banks and oil stocks were seen as old-fashioned, based on the idea that interest rates would remain low and fossil fuels would be rapidly replaced by renewable energy. Combs then begged to differ and continued to view these stocks as suitably defensive.

He says: ‘Banks should profit as long as interest rates are not raised too rapidly; We have bought into Northern Trust and US Bancorp.

But we also have a stake in the Chicago Mercantile Exchange because this business does well when people start hedging against future price hikes in the commodity.

On the premise that demand for certain commodities will be keen, Combs is buying into legal and common commodities ETFs (exchange-traded funds) and Australian and Canadian government bonds. Both countries have rich mineral resources.

Coombs is also calculating that consumers cannot deny themselves things that are currently in vogue, for example the Tiffany necklace sported by US Open tennis champion Emma Radukanu. The jeweler is owned by luxury goods conglomerate LVMH.

He argues that consumers regard Estee Lauder skincare and Nike sneakers as ‘luxury staples’.

The belief in the defensive qualities of big brands also drives the strategy of Matthew Page, joint manager of Guinness Equity Income Fund, which has stakes in Otis Worldwide, the best-known name in elevators and escalators.

Page is watching and waiting to see the stock prices of well-capitalized companies focusing on the consumer discretionary, healthcare and technology sectors fall.

The noise for their products will not be affected by high inflation – and they may incur additional costs on customers.

‘For example’, he says, ‘auto manufacturers will pay the prices that are demanded for semiconductors as these are essential for vehicles.’ Electric vehicles, which are growing in popularity in response to the rising price of petrol, require more semiconductors than ordinary cars.

Such is the complexity of the task of building a defensive segment of your portfolio that Ben Yearsley of Shore Capital suggests entrusting it to a team of professionals.

He cites a personal asset investment trust consisting of a mix of index-linked bonds, gold and big brand stocks.

Other options if you want assurance but also include the potential for good returns, include a trust with links to RIT Capital Partners, Rothschild Dynasty.

It aims to ‘provide long-term capital growth while preserving shareholders’ capital’ through a combination of shares in listed and private companies and hedge funds.

Another safety-first selection is the Rougher Trust which ‘targets consistently positive returns, no matter how the market performs’.

Ruffer currently holds TIPS and UK index-linked bonds, cash, gold, plus shares in Lloyds and NatWest. BP, Shell and Equinor also have Norwegian oil, gas, wind and solar power groups in the portfolio.

Fashionable or not, businesses that help keep the lights on, either through fossil fuels or through 21st century types of renewable energy, must ensure that another 1970s memory – Three day week – does not return.

Popular Shares – Maintain

Anten makes its money from gambling – but now it is the company’s board that is being asked to take a punt on the £16 billion takeover offer.

The betting giant — which owns the Ladbrokes and Coral brands, as well as a slew of online game names like Gala Bingo — revealed last month that it had received two approaches from US rival DraftKings, the latter pricing Enten’s shares. Were on 2800p.

Shareholders will be watching Anten’s latest trading update Tuesday for any indication of what the company plans to do. It rejected DraftKings’ initial 2500p offer, and in its latest announcement in September said it was ‘carefully considering’ the higher bid.

But enter…


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