Resource Equities: Inflation Protection Trading at a Discount

Written by: Focused Equity Team at GMO
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During inflationary periods, resource equities have grown purchasing power

After decades of subdued inflation, rising prices in commodities and consumer goods have prompted many investors to revisit their portfolios’ ability to withstand a rise in inflation.

Historically, resource equities have not only protected against inflation, but have actually dramatically increased purchasing power during inflationary periods. In the U.S., we’ve identified eight periods of time where inflation, as measured by CPI, was more than 5% per year for a period of one year or longer.

In those inflationary periods, a basket of energy and metals companies kept up with or beat inflation six out of eight times, and in all eight periods the commodity producers outperformed the S&P 500. In fact, the commodity producers delivered real returns of more than 6% per year on average during these inflationary periods, as compared to a destruction of purchasing power of around 1.6% per year for the S&P 500.

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