How to Pick Stocks to Hedge Against Inflation

By Covering Business     March 14, 2012

The broad stock market is a notoriously bad hedge against inflation, so investors looking to guard their portfolios against rising prices typically look to hard assets like gold and real estate. However, recent volatility in the commodities and real estate markets could leave some investors in search of a more stable hedge.

A recent study by the National Bureau of Economic Research turned back to the stock market in search of an inflation hedge, but rather than looking at the broad market, the researchers examined the inflation hedging ability of individual stocks. They theorized that because some companies retain more pricing power than others, they might do a better job at coping with inflationary pressures than the market as a whole.

Here’s what they found:

• Oil and gas stocks perform particularly well in inflationary environments because they benefit directly from rising energy prices.

• Technology stock performance is also linked with inflation because tech companies frequently introduce new products and can adjust their prices more easily than companies that have been selling the same product for decades.

• The degree to which individual stocks and sectors are associated with inflation varies significantly over time. In other words, a company may do a fine job at hedging against rising prices one year but a poor job five years later. That makes it difficult to create a dependable inflation-hedged stock portfolio without active management.

Read the full report.
(Login required. Free registration for journalists.)


Comments are closed.