As inflation continues to rise advisors are working to reposition portfolios to take advantage of the new market environment. Amplify ETFs offered some insight and suggestions in a recent webcast moderated Lara Crigger, managing director of ETF Trends & ETF Database. These topics include: what investments benefit from inflation, two stock characteristics currently attractive options to core equity portfolios; finding above average income even in rising rate environments; and the benefits of active managing volatility.
Christian Magoon, founder of Amplify ETFs and COO, explained that this is the first time advisors have had to apply inflation hedges in their portfolios since the 1970s. 2021 marked the 12ThYear of a bull market for the economy. However, that run has seen drawdowns, sometimes as high as 20%.
Markets are facing risks now and in the future, including geopolitical risk, COVID-19 variants and rising interest rates. The S&P 500 has experienced a shock that was negative in the short-term, but then saw it gain over a year.
Russia is not good for the markets in the near term, and there could be more. But, we notice that these types of shock events tends to get worked out over time by the markets and that the S&P has been in a positive response, Magoon said. In the midst of the Russian-led storm, it is worth considering.
Magoon also discusses the estimated COVID-19 variants’ schedules and the gradual economic impact reductions that have occurred with each variant. Finally, Magoon moves on to discuss rising rates impacts on stocks and the surprising positive performance of the S&P 500 in rising rate times.
Michael Venuto is co-founder and CIO at Toroso Investments. He discusses inflation and the rise in commodity prices. He also discusses the diversification benefits that commodities investing can provide. Venuto makes it a point to emphasize the importance of investing in multiple commodities, as they all behave differently in short-term and are volatile.
2 Strategies to Invest in an Inflationary Environment
More than half the advisors who participated in the call said that they used dividend-paying stocks for their clients’ income. Kevin Simpson, founder of Capital Wealth Planning, LLC, discusses the current market conditions and the importance investing in dividend-paying stocks for retirement.
The recession problem is a real problem. We might be capable of avoiding stagflation, because we have low interest rate. Stagflation is a strange thing. It’s a shrinking economy with rising rates. Simpson says that we still have low unemployment. One thing I will tell you is that if we do enter a recession, which I believe is more likely than most strategists, I believe it will be less severe than previous recessions.
The Amplify ETF (DIVO), Amplify CCWP Enhanced Dividend income ETF The fund seeks to invest in mega-cap dividend growth companies and has a covered call component which offers some downside protection and the possibility of additional income.
Venuto is the pivot of the talk to the Amplify Inflation Fighter ETF (IWIN)Explains that real inflation is for investors a combination currency debasement (such a stimulus and increased printing money) and rising cost of goods. This can be caused by a variety factors such as supply chain issues, geopolitical tensions and others. Real inflation benefits include gold, bitcoin, land, and commodities REITs, real-estate technology, as well as consumer commodities that fight rising cost of goods.
Venuto states that what we did with IWIN, our inflation-fighting actively managed ETF with Amplify is that we combined the ability of using equities that should fight inflation with commodities that should fight it.
The commodities portion can make up to half of the portfolio and includes both commodity futures AND ETFs. While the equity portion has more traditional inflationary allocations such homebuilders or asset miners, the equity portion is larger and contains more traditionally expected inflationary allocations. IWIN doesn’t contain traditional REITs, but does include commodity REITs such farmlands.
Financial advisors who are interested to learn more about income opportunities within an inflation environment can view the webcast on demand.