Inflation rate in the US is currently 5.4% and I've been getting questions on how my portfolio is hedged against inflation since we're expecting high inflation in the coming years. I don't really like to design my portfolio based on macroeconomics but the way it is structured, it is properly hedged against anything.
While I have 25% of my portfolio in cash and cash equivalents. These are not just cash and bonds but also contain Gold, Silver, and TIPs ETFs $GOLD $GLD $TIP I know that this is not the textbook definition of cash and cash equivalents but this is only because I intend to use this part of my portfolio to buy stocks. This part of my portfolio is more or less neutral on inflation.
Normally growth stocks do not do well with inflation and I have only one big one in my portfolio and that's Skyworks Solutions. I'm going to hold on to the stock since it is still fairly valued and yet to win from 5G. This is a long-term investment. Alaska Airlines will also be negatively impacted.
The Value Stocks will win from inflation especially UNFI. Inflation is good for their business. Higher Inflation also means that the Fed will eventually have to raise interest rates. This will be good financial stocks in my portfolio such as JPMorgan Chase, Essent Group, and Genworth Financial. The commodity stocks, Freeport-McMoRan and Polymetal International will also win from inflation.
The special situation stocks in my portfolio (excluding Genworth Financial) and the Chinese stocks have low market correlations $SPX500 and the effects of inflation on them will depend on other factors.
Overall this is what matters. To buy stocks with good fundamentals at undervalued prices and make sure that they have a low correlation with each other and with the market. Then, you should not fear inflation.