There are few things as pervasive and potentially destructive to real returns than inflation. The fear of watching rising costs consume investors' portfolios has many people seeking out the best corners of the S&P/ASX 200 Index (ASX: XJO) to fend off the devaluing phenomenon.
For this reason, the market has tended to steer away from the traditionally dubbed 'growth shares'. Taking their place in popularity are the companies with proven profits at reasonable prices — otherwise known as 'value shares'.
Although, which ASX 200 value shares might not only handle higher inflation but actually benefit from it? Offering potential answers to this question, Lazard Asset Management portfolio manager Aaron Binsted rattled off a few names with Livewire recently.
Let's take a look at what the fund manager had to say.
Inflation beneficiaries in the ASX 200
According to Binsted, value shares are set to outperform amid a turn away from the speculative side of the market. Behind this confident projection are a number of key factors firming the fund manager's view. These include rising inflation, earlier rate increases, and extreme volatility.
In the interview, Binsted highlighted three ASX 200 companies that he expects will ride the wave of inflation.
Firstly, the portfolio manager labelled the energy and insurance sectors as breadwinners during the transitioning environment. Of these, Woodside Petroleum Ltd (ASX: WPL) was Binsted's top pick among energy shares.
With oil prices at seven-year highs, nearing US$100 per barrel, beefed cash flows and margins are enticing to the fund manager. Binsted said:
We know that gas demand is going to have structural growth in Asia for at least the next 20 years. So, it's a really nice combination of really high returning cash flow, short payback in oil and longer-term steady cash flow on the LNG side
Meanwhile, on the insurance front, QBE Insurance Ltd (ASX: QBE) takes the crown as the pick of the bunch. Binsted expects QBE to gain around 5% to 6% on its earnings per share (EPS) for every 0.25% increase in interest rates. If this turns out to be true, the insurance provider could be staring at bigger profits in the future.
The final ASX 200 share that might be a winner under inflationary circumstances is Computershare Limited (ASX: CPU). According to the experienced investor, EPS could lift 10% for each 0.25% rate rise. The stock registry services provider won over the market with a solid half-year result in early February.
