Inflation continues to weigh heavy on the minds of investors, but there are ways for them to push back in order to extract maximum benefit from their portfolios.
“The annual inflation rate in the US surged to 6.2% in October of 2021, the highest since November of 1990 and above forecasts of 5.8%,” Trading Economics says. “Upward pressure was broad-based, with energy costs recording the biggest gain (30% vs 24.8% in September), namely gasoline (49.6%).”
Inflation is running hot enough for words like “stagflation” to enter the market atmosphere — something not seen or heard of for four decades. Yet, despite the U.S. Federal Reserve’s forecast that inflation is transitory, an increasing narrative that it could be long-lasting could be overpowering the Fed’s prognostications.
“U.S. inflation is at its highest rate in 31 years, with consumers seeing prices rise sharply for a variety of goods and services because of persistent supply and labor shortages and strong demand,” a Wall Street Journal report says.
“Stoked by imbalances in the economy created by the Covid-19 pandemic, inflation is one of the most vexing problems facing economists and government policy makers—from Federal Reserve officials, who set interest rates, to the Biden administration and Congress,” the Wall Street Journal adds. “The causes are myriad, and the tools that are usually deployed can, in some scenarios, push the economy into a recession as a way of taming price pressures.”
Counter Inflation With Dividends
For fixed income investors, inflation is certainly a thorn in their sides, particularly if their portfolios contain bonds. That said, investors looking for more yield amid rising inflation can look to exchange traded funds (ETFs) such as the FlexShares Quality Dividend Index Fund (QDF).
QDF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Quality Dividend IndexSM. The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater financial strength and stability characteristics relative to the Northern Trust 1250 Index, a float-adjusted market-capitalization weighted index of U.S. domiciled large- and mid-capitalization companies.
“The fund follows a Northern Trust index that selects dividend-paying large-cap U.S. equities,” an ETF Database analysis notes. “Simple enough, but then the index weights the portfolio toward companies that earned the highest ‘dividend quality’ scores.”
“To prevent unintentional concentrations, the methodology caps the weighting of individual securities, industry groups, sectors and styles,” the analysis adds.
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