Inflation – it's something we are hearing a lot more about lately. The Australian Bureau of Statistics revealed last week that Australia's inflation rate rose 3.8% for the year. While the rise is steep, it is hard to say whether it is transitory or not.
Nonetheless, investors of ASX shares might be wondering how to protect against the effects of inflation.
One Australian fund manager has shared their take on inflation and how to structure a portfolio against it.
Let's dive in…
How to pick inflation busting ASX shares
A concern for investors is rising inflation. If inflation rises, interest rates move in tandem – meaning higher returns on cash deposits. Typically, when investors can get reasonable risk-free returns on cash, ASX shares tend to lose momentum.
On the other hand, inflation can increase the operating costs for companies. Unless companies can pass the increased cost onto consumers, or reduce costs in other areas, profits can shrink.
Portfolio Manager and Head of Research at Airlie Funds Emma Fisher recently discussed the prospects for ASX shares and how to combat inflation.
Ultimately when we look across the portfolio, I think the key thing to worry about is that the businesses you're invested in have pricing power. Inflation is going up in the near term… the unanimous feedback from corporates is that they are seeing raw material and labour market inflation coming through. Their hope is that they are going to be able to pass that through to the end consumer in the form of higher prices.
While Fisher admitted that it is unknown whether inflation will continue to rise at its current pace, the fund manager explained the types of companies the fund holds have pricing power.
These ASX-listed shares include James Hardie Industries PLC (ASX: JHX), Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW), and Reece Ltd (ASX: REH).
Businesses like that, we think can navigate choppy cost-inflationary environments and come out the other side protecting margins and really benefitting.
When is Woolworths expected to report to ASX?
Being one of the largest ASX-listed companies, Woolworths' FY21 annual report is highly anticipated. The grocery retail giant is expected to release its annual results on 26 August 2021.
Shareholders are also watching attentively for any developments in regulatory concerns surrounding Woolworths. Announced last week, the New Zealand competition regulator voiced concerns of a duopoly.
