An inflation hedge?

[YeeWo]

Terry Smith's letter and having some time at home has given time to really think and act. BATS, BLND, RB & VOD have all been disposed of and replaced with some Index ETFs which provide wider diversification. I have circa 5% of the portfolio left in Cash and am perusing options to hedge against inflation. Given the world is Drowning in debt, I think this prudent. Anybody have any constructive ideas?

[dealtn]

Terry Smith's letter and having some time at home has given time to really think and act. BATS, BLND, RB & VOD have all been disposed of and replaced with some Index ETFs which provide wider diversification. I have circa 5% of the portfolio left in Cash and am perusing options to hedge against inflation. Given the world is Drowning in debt, I think this prudent. Anybody have any constructive ideas?

Much of BLND's income stream is RPI linked rentals.

BATS product is price inelastic.

RB. has a breadth of consumer staples.

I would say you have sold a number of natural inflation linked income streams.

[JohnW]

Perfectly hedging 5% of your portfolio against inflation won't help much if the other 95% takes a battering. However, inflation linked government bonds would do the job, albeit with negative yields right now. You could get those in a bond fund as well which would come with interest rate risk.

[onslow]

YeeWo - can you please advise which Terry Smith letter you're referring to?

A new/recent one I assume!

[Itsallaguess]

YeeWo - can you please advise which Terry Smith letter you're referring to?

A new/recent one I assume!

Here's a link to the latest January 2021 letter - https://www.fundsmith.co.uk/docs/default-source/analysis---annual-letters/annual-letter-to-shareholders-2020.pdf?sfvrsn=4

They're always a very interesting read.

Cheers,

Itsallaguess

[XFool]

...Interesting indeed. But I didn't see anything about either national debt or inflation in there.

[JohnW]

https://pdf4pro.com/amp/download?data_i ... s-vanguard.
where you can download, and read this extract: 'Overall, the inflation-hedging properties of U.K. inflation-linked gilts would seem to validate the shorter-sample results we have found for the U.S. TIPS market.'
There is a discussion about this at: https://www.bogleheads.org/forum/viewtopic.php?t=104124.
where you can read: 'REITs' correlation with inflation, from 1972 - 2012, was negative 0.02. They certainly did not succeed as an inflation hedge over that period. Maybe it's time for a rethink on that one, and on the wiki's wording: "REITs are weakly correlated to inflation."'
I think the trick about real estate is how much of its value is in the land, and how much is in the income from the land. If a lot of value is in the former it's a better inflation hedge than if it's in the latter. Quantitatively, no idea.
Search for: Commodities and short-term TIPS: how each combats unexpected inflation.