Investors have realized that central banks are falling behind on battling inflation, and, that value stocks provide the best hedge against rising prices.
Out of 886 investors surveyed, about 73% voted that either “all” or “most” monetary authorities in developed markets haven’t done enough to tame inflation. While headline U.S. inflation has run way above 2% for a year now, the Federal Reserve was purchasing bonds until recently and raised rates for the first time this cycle.
An additional 21% of respondents said only “some” central banks are behind the curve, which may be an acknowledgment that those in New Zealand and Norway have long been raising rates without any fuss.
The Bank of England’s benchmark is now what it was before the pandemic started. However, inflation is running around 8% and may well exceed 10%, a throwback to the era of Margaret Thatcher.
The BOE keeps reiterating that it foresees only modest tightening, causing inflation expectations to rise further and compelling investors to search for effective hedges on the chance it may fail to prevent spiraling prices.
Garnering 35% of the votes, value stocks were the top pick to insulate a portfolio against the corrosive effects of price rises, according to hedges.
While inflation-linked bonds also provide an effective hedge, value stocks don’t compel investors to pick a tenor. That preference for value stocks over linkers may originate from the ability of companies to pass on cost increases to customers.
European investors are less likely to prefer value stocks than their U.S. counterparts. However, inflation hedging preferences vary by region. About 24% of European respondents named them as the best hedge, compared to 39% of U.S. and Canadian respondents.
Europeans were more apt to choose gold and oil compared to U.S. peers. One reason why value stocks may be more preferred in North America is the higher percentage of retail investors there who participated in the survey.
Only 4% of respondents said Bitcoin offers the best inflation hedge, those who picked the largest cryptocurrency were about evenly split between market professionals and individual investors.
Crypto ranked last in a field that included value stocks, gold, inflation-linked bonds, oil and unspecified other assets.
The results undermine the idea that Bitcoin is perceived as a popular haven from inflation eroding the real value of fiat currencies.