Real returns are being eroded as inflation soars — but fund manager Brian Arcese has a number of stock picks he thinks are effective inflation hedges. The U.S. inflation rate rose in April with the Consumer Price Index increasing 8.3% from one year ago. This was higher than anticipated, however, it is still a small improvement from March’s high. The Federal Reserve’s preferred inflation gauge grew 4.9% in April compared to March’s 5.2%. This suggests that prices may be starting to ease. However, inflation is still at an elevated level and investors continue to experience volatility. Arcese stated that while we expect inflation to decrease from now, it should remain significantly higher than where it was for the last 15 years. Foord Asset Management is Arcese’s portfolio manager. The boutique investment company has $8 billion in assets. He manages the Foord International Fund — a multi-asset portfolio that aims to deliver returns in excess of U.S. inflation over five years or more — as well as the Foord Global Equity Fund, an equity-only product benchmarked against the MSCI World Index. He spoke to CNBC Monday and said that the Foord International Fund’s goal of beating inflation over time is “a hallmark”. We aren’t necessarily trying to bring inflation +5[%]In any quarter, any year but definitely throughout the entire cycle. Annualized returns have been 6.7% for the fund since it was established 25 years ago. This is comfortably higher than the inflation rate of 2.4% during the same time period. Arcese said, “We place a great deal of emphasis on cashflow and the quality and efficiency of our management team, as well as how many earnings we can earn, in particular earnings that are based on cashflow.” Commodities to hedge against inflation Around 20% is exposed directly to commodities via a mixture of commodity-linked stocks and physical commodities. In any form of inflation it is the real assets that will protect capital erosion. CNBC Pro told Arcese that owning equity that has real assets was the key reason they are truly the best hedges. He acknowledged that soaring commodity prices this year meant some commodity stocks could look expensive, but insisted that commodities will remain a “meaningful” part of his portfolio. We agree with most market participants that certain commodity prices have likely gotten too high in some pockets. We are slowly trimming. [our holdings]He said that although we have a lot of confidence in investing in these names over the long-term, it is still a difficult decision. Stock Picks In the mining sector, Arcese stated that the firm invests only in companies of “high quality”, which are those with “highest-calibre management” and who also return substantial cash to shareholders. Copper miner Freeport McMoran was one of Arcese’s top choices in the space. He described it as “one among the most cost-effective copper producers worldwide” and pays dividends. We are really trying to give our investors a total return. It can include both capital appreciation and dividends paid back by companies to shareholders. He stated that we aim to make investments in companies that will return substantial amounts of cash to shareholders. Arcese is also a fan of Pan American Silver mines operator, Wheaton Precious Metals streaming company, Lynas rare-earths miner from Australia, Kenmare Resources in Ireland, as well as Kenmare Resources mining firm. In the larger commodities sector, Arcese also loves chemicals companies FMC and Livent as well Canadian fertilizer company Nutrien and Bayer.
The dump truck loads ore in a crusher at Freeport McMoRan’s Grasberg gold and copper mining complex, Papua (Indonesia).
Dadang Tri | Bloomberg | Getty Images
Real returns are being eroded as inflation soars — but fund manager Brian Arcese has a number of stock picks he thinks are effective inflation hedges.
