Here’s what Vanguard has found to be the most powerful asset class for fighting inflation

0

Not all inflation hedges are created the same.

Investors have certainly flocked to Inflation-Protected Treasuries, or TIPS, with the 10-year TIPS yield near a record low of -1.08% on Monday. But according to research by index fund giant Vanguard, the unexpected inflation beta is around 1. That is, a 1% rise in unexpected inflation would produce a 1% rise in the value of TIPS.

The hedging power against commodity inflation, on the other hand, is much stronger, and has been for some time. Over the past decade, the beta of commodity inflation has fluctuated between 7 and 9, which means that an unexpected 1% rise in inflation would lead to a 7-9% rise in commodities.

In recent times, stocks have been a better hedge against inflation, although they are still not as good as commodities. The Russell 3000’s inflation beta is now positive – unlike in the 90s – although it has declined in recent years. Vanguard research notes that commodity-related sectors such as energy and materials now account for a smaller share of the equity market than before, while tech and consumer discretionary sectors ineffective against the market. inflation are more important.

And the worst inflation hedge is bonds, as rising interest rates erode their value.

The buzz

Retail sales in the United States fell 1.1% faster than expected in July. Even excluding autos, retail sales fell another 0.4%.

U.S. equity futures fell, after a session in which the S&P 500 and Dow Jones Industrial Average each hit their fifth consecutive record high. The losses accelerated after the disappointment in retail sales.

Home Depot, home improvement retailer, reported slowdown in same-store sales higher than expected growth, although profits exceeded estimates as Walmart both exceeded profit and sales expectations and raised its sales forecast for the year. Walmart shares fell 1% and Home Depot fell 3% at the start of the pre-market action.

The United States should recommend booster shots of COVID-19 eight months after vaccination, according to the New York Times. New Zealand entered a three-day national lockdown on a single case of COVID.

Quarterly deposits made by fund managers showed Berkshire Hathaway increased their bet on the Kroger grocery chain while cutting several of their healthcare investments, and Michael Burry’s Scion Asset Management is betting against the fund. ARK innovation led by Cathie Wood.

In a series of tweets, Wood defended his position.

Table

The risk premium of equities – the difference between earnings and bond yields – hit a 15-month high in Europe, thanks to strong earnings that sent analysts’ net revision ratio to its highest since 2017, according to the reports. data compiled by the fund manager. Tree of wisdom. The Stoxx Europe 600 Monday broke a 10-game winning streak, its longest in 14 years, as the index has climbed 18% this year.

Random readings

Magnetic tapes will be phasing out of Mastercard credit cards.

Pi has now been calculated to a staggering level 62.8 trillion digits.

Need to Know starts early and is updated until the opening bell, but register here to receive it once in your mailbox. The emailed version will be sent at approximately 7:30 a.m. Eastern Time.

Want more for the day ahead? Sign up for Le Quotidien du Barron, a morning investor briefing, including exclusive commentary from the editors of Barron’s and MarketWatch.


Source link

Leave A Reply

Your email address will not be published.