With inflation having been a thorn in the side of investors for more than a year now, it’s an appropriate time to evaluate the performances of various asset classes with inflation-fighting reputations.
This year, Treasury inflation-protected securities and I bonds are doing their jobs while gold is disappointing in terms of pure performance. That said, bullion is outperforming aggregate bond strategies as well as broader equity benchmarks.
Some other inflation-fighting assets have had mixed performances this year, including the real estate sector and real estate investment trusts (REITs). That’s a sign that investors turning to real estate as an inflation refuge may want to consider embracing active management. Enter the Virtus Duff & Phelps Global Real Estate Securities VGISX. Some experts contend there’s still value in real estate as an inflation hedge, and that could bode well for VGISX.
“For example, real estate investment trusts have fared reasonably well as inflation hedges. That’s because the owners of the apartment and office buildings, shopping malls, and hotels in REIT portfolios are often pushing through rent increases at times when inflation is running up, which in turn enhances REIT payouts and security prices,” wrote Morningstar analyst Christine Benz.
While VGISX is a relevant consideration today for investors of all ages, the actively managed fund could be particularly appealing for retirees or those nearing retirement. The reason for this is that, not surprisingly, various surveys indicate that inflation is the primary financial issue causing older investors to lose sleep.
“Topping the worry list for pre-retirees? That the value of their investments might not keep up with inflation. Nearly two thirds of pre-retirees cited inflation as a key worry—tied for the top slot with concerns about long-term-care expenses and ahead of worries about higher healthcare costs,” added Benz. “While inflation averaged less than 2.0% between 2011 and 2020 and it was 1.4% in 2020, those pre-retirees were ahead of the curve. Inflation jumped sharply, with the Consumer Price Index peaking at 9.1% in June 2022.”
As an actively managed fund, VGISX isn’t constrained by index rules and can move more nimbly to allocate to REITs with positive correlations to inflation and those with sturdy balance sheets that can afford to consistently boost distributions, which certainly helps when inflationary pressures are intense.
“The broad market serves as a good baseline when setting your real estate allocation: Total-market U.S. indexes currently have about 3% in real estate securities,” concluded Benz.
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