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…Investors may be wondering how to position their portfolio to hedge against inflation…[and this article] shows which asset classes have beat inflation in recent years.
Real Returns by Asset Class
@$To see which asset classes have helped hedge against short-term inflation, we calculated annual real returns—returns net of inflation—for various types of investments. A return above zero means that the asset class beat inflation, while a return below zero means that the asset class did not keep up with inflation.
Here are minimum, median, and maximum annual real returns for various asset classes from 2012-2020.
| Minimum | Median | Maximum | |
|---|---|---|---|
| Global equities | -11.6 | 15.4 | 24.5 |
| U.S. large cap equities | -6.3 | 14.3 | 30.9 |
| Listed infrastructure equities | -8.8 | 12.3 | 23.8 |
| Real estate investment trusts (REITs) | -7.3 | 7.2 | 26.4 |
| Gold | -28.8 | 6.0 | 23.2 |
| U.S. treasury inflation protected securities (TIPS) | -10.1 | 2.6 | 9.6 |
| Foreign bonds | -9.6 | 1.8 | 14.1 |
| Floating rate bonds | -0.4 | 0.0 | 2.2 |
| Global commodities | -33.9 | -2.7 | 15.3 |
| Energy equities | -38.0 | -11.5 | 36.7 |
@$$…There are some limitations to the above data…Asset classes may respond differently during periods of high inflation. For example:
- equities have shown their highest real returns when inflation is between 2% to 3%…
- commodities had a negative median real return in recent years but they performed well during three historical periods of high inflation. When annual inflation averaged about 4.6% from 1988-1991, commodities had a total annualized return of over 20%…
- Gold has had a more mixed track record during high inflation, though it had a whopping annualized return of 35% from 1973-1979…[but] over the long-term, gold has seen strong inflation-adjusted returns.
What Can Investors Do?
…There is no one asset class that has proven to be a silver bullet against inflation historically. Instead, investors may consider diversifying their portfolio with asset classes such as equities, REITs, commodities, and gold. This may help hedge against inflation, whether it stabilizes around 2% or rises to levels not seen for decades.
Editor’s Note:
The above version of the original article by (visualcapitalist.com) was slightly edited and abridged for a faster and easier read.
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