As inflation remains stubbornly high and volatility in US stocks and bonds persists, one strategist has shared his best ways for investors to protect their income. It comes after U.S. consumer prices rose again in August, with the annual CPI remaining above 8% for six straight months. Mark Jolley, global strategist at CCB International Securities, said central banks needed to tighten further and a recession was “almost inevitable”. “For the next six to 12 months in the US … the best option is not to invest now, just wait a few months,” he told CNBC’s Street Signs Asia earlier this month. However, if investors want to get into the market, he advises them to look beyond the US and consider European inflation-linked bonds. “Because you’re going to have very high US inflation over the next few quarters, which will probably give you a decent return given how weak the euro is,” Jolley said. High inflation increases the likelihood that the US Federal Reserve will hike rates further, which tends to mean a stronger dollar. The weaker euro could then exacerbate inflation in Europe – which would result in euro inflation-linked bonds doing well. His favorites include the iShares Euro Inflation Linked Government Bond UCITS ETF and the iShares TIPS Bond ETF. Meanwhile, Morningstar said in a note last week that inflation-linked bonds issued from May to October 2022 offered an attractive yield of 9.62%, but pointed out there are some downsides. These include a restrictive buy limit of just $10,000 per year for larger investors, as well as a lack of liquidity as they don’t pay off until sold at least 12 months after purchase. Morningstar’s top picks in this area include the Vanguard Short-Term Inflation-Protected Securities Index and the Schwab US TIPS ETF. Commodity fund Jolley expects food prices to rise even more over the next 12 months, citing droughts followed by floods in the US of late. It’s a bad combination for agricultural output, and high gas prices will contribute to higher fertilizer prices, he added. He said investors could play higher agricultural prices through the Invesco DB Agriculture Fund. Morningstar also singled out a commodity fund to fight raging inflation in its recent note: the Pimco Commodity Real Return Strategy Fund. This bronze-rated fund is “one of the best commodities stocks.” The “Best Sweet Spot” As US investors scramble to manage ongoing volatility, particularly in stocks, Jolley said the “brave” might consider stocks abroad. “If you are willing to be a little bold, as a US investor I would try to accumulate stocks overseas. I would try to buy stocks in countries that don’t have a lot of debt because they bring higher interest rates, ultimately those markets are going to do well,” he told CNBC. “Right here at the moment The best place for performance is probably the A-share market because inflationary pressures in China are fading at this point,” Jolley said, referring to mainland China equity trading. His choice for a China A-share fund was the iShares A Share ETF.
