AJBell Youinvest Shares Magazine 11 August 2022

How have three ETFs with inflation protection qualities performed? The ones tracking gold and infrastructure have done well but the gilts product has disappointed

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heodore White, the American political journalist, described inflation as ‘arriving gradually, is recognised too late and can be cured only by ruthless political surgery’. In June the UK’s annual rate rose to a new four-decade high and is predicted to peak at 13% according to the latest Bank of England forecast. While many of today’s investors have never seen meaningful inflation anybody who lived during the 1970s will need no reminder about how destructive inflation can be. In the UK, inflation jumped from 9.2% in September 1973 to 12.9% in March 1974. The latest surge in prices has generated increased interest in investments which offer a degree of protection against inflation and this includes ETFs (exchange-traded funds). In this article Shares profiles three relevant ETFs and looks at their strengths and drawbacks. They are: iShares Index Linked Gilts ETF (INXG), Invesco Perpetual Gold ETF (SGLD) and SPDR Morningstar Multi Asset Global Infrastructure (GIN). INFLATION AND INDEX-LINKED GILTS The first modern inflation-linked bonds, or ‘linkers’,

were issued by the UK in 1981. It was issued by single price auction, and indexation was to the general index of retail prices (RPI). Index-linked gilts work by benchmarking their coupons and principal repayment amount against an inflation index. Gilts issued by the UK government use RPI as their benchmark. Coupons are paid on a semi-annual basis (i.e. twice yearly). The coupon amount you’ll get with each payment will be determined by how much the

Types of infrastructure assets Transport

Utilities

Communications

Renewable power

Toll roads

Electricity transmission

Broadcast towers

Hydroelectric power

Airports

Gas distribution

Wireless towers

Wind