Questor: as inflation soars to 30-year high, how has our Wealth Preserver portfolio done?

The highest rate of inflation for 30 years has the potential to destroy a lot of investors’ wealth. And things could get worse before they improve.

According to the Bank of England, global inflationary pressures “will strengthen considerably” over the coming months. It now expects inflation to reach more than 8pc this quarter and perhaps even higher later in the year.

Unlike in March 1992, when inflation last reached 7pc, interest rates remain low. The Bank Rate then was more than 10pc; today it is just 0.75pc even following three consecutive increases.

Further interest rate rises to curb inflation are not certain, however. The Bank expects the intensifying cost-of-living crisis to weigh on economic growth in the coming months and won’t want to risk outright recession by squeezing borrowers too much.

But in either event interest rate rises are subject to time lags: there is a delay before their impact is fully felt. As a result, a period of sustained high inflation would be wholly unsurprising. Clearly, though, the situation is extremely fluid and highly unpredictable.

In Questor’s view, holding a wide range of assets that have the potential to overcome a period of sustained inflation is the prudent course of action and our Wealth Preserver portfolio contains several holdings that have produced encouraging returns since its launch at the beginning of last year.

Notably, gold has risen by about 16pc in sterling terms since we added it to the portfolio a year ago. It has benefited not only from its status as a store of wealth amid rising inflation, but also from its perceived defensive characteristics in an increasingly uncertain geopolitical environment.

We expect a more mixed performance from gold in future thanks to the prospect of interest rate rises in America. Higher rates make income-producing assets more appealing.

Our four commodity holdings have also performed well amid rising inflation, the global economic recovery from the pandemic and supply constraints caused by the war. Together, they have generated a 23pc return since they were added to the portfolio in October last year.

The prospect of weaker economic growth means we must now manage our expectations of commodities in the coming months but retain our upbeat assessment of their long-term ability to overcome high inflation.

Our property and infrastructure holdings have made gains of 6pc on average and remain key allies in the battle against inflation. Meanwhile, our bond funds have generated an average return of 3pc, which we view as a solid result given rising interest rates, and our “uncorrelated” assets are little changed overall relative to their purchase prices.

The biggest disappointment has been this column’s lack of success, thus far, in selecting stocks to weather a period of higher inflation. Our eight direct equity holdings have lost 8pc overall. But Questor continues to view them as key to overcoming what could prove to be a period of sustained above-target inflation.

Update: Auto Trader

Auto Trader is one of our shareholdings in profit, albeit by a modest 1pc since we bought it in July last year. Encouragingly, Britain’s largest digital vehicle marketplace posted record first-half revenues and profits in its latest interim results.

Since then, the consumer outlook has deteriorated. The cost-of-living crisis may prompt consumers to delay replacing their existing cars, which could create more challenging operating conditions for the company.

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