Taking a stake in equities is the best way to hedge investment against inflation, claims a leading fund manager.
In a low interest global environment where inflation is eroding the value of cash savings and gilts, equities may save the day, says Nick Train of Finsbury Growth and Income Trust.
Train reckons over the long-term, headline rates of cash accounts and bonds may attract investors who fail to consider the effects of inflation.
“Equities are the best hedge in my opinion,” Train has told magazine What Investment. “Cash and bond holders lose in the long term, while equities will provide an above-inflation return.
“While past performance might not always be best, I would tell equity investors to look at companies that have come through downturns or market volatility in the past. Buy these stocks and stay with them.
My best investment
“These equities will outpace inflation and beat the returns offered buy cash and bonds.”
Train spoke about some specific investments – praising a stake in Premier League football club Manchester United as one of his best investments.
He also explained drinks firm Diageo – which sells brands like Johnnie Walker scotch and Guinness – is a stock that has survived economic shocks over the years.
“After surviving the past 50 years, I can’t see why it shouldn’t go on for another 20,” he said.
Train revealed the firm is the largest holding in his fund.
Unilever was also highlighted as another good performer that makes up a significant holding in the fund.
“I bought in at £6 around 20 years ago,” he said. “Now, the shares are valued at just under £25. The share value has beaten inflation over that period, and that’s while paying regular dividends that are not considered in the equation.
Many investors urged Train to sell Unilever when the shares reached a peak of £29 in May 2013, but he feels exonerated even though the price has slipped back because trading costs would have softened any profits.
“My view is Unilever shares could be as high as £100 in another 20 years,” he said.
He also disclosed a professional investment tip.
“Don’t concentrate on timing, because markets are so volatile in the short-term and it’s a difficult to best guess them,” he said. “Even buying in high can end up offering good value when looking back at performance over a number of years.”