Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
The three top ASX inflation hedges
The ASX 200 has fallen 5.5% in 2022 as inflation fears spook investors.
Inflation reached 7.9% in the United States. It’s not nearly as bad in Australia, but 3.5% is still well above what economists prefer.
Here are three ASX 200 shares to buttress your portfolio against inflation.
1. Woolworths Group Ltd (ASX: WOW)
Woolworths is arguably the best ASX 200 inflation hedge.
Everyone needs groceries. The business has the largest buying power of any operator. And it’s leveraged to price-sensitive customers via the Big W network.
Any price increases can be passed onto consumers. Even if the company feels it can’t, Woolworth’s economies of scale mean it can absorb margin pressure better than competitors.
Finally, if household budgets are squeezed, this will likely increase demand for eating from home.
With a reliable 2.6% fully franked dividend, Woolworths is a bottom draw company when inflation bites.
2. Transurban Group (ASX: TCL)
Transurban owns toll roads across Australia and North America.
Most of Transurban’s travellers don’t have a second option.
Customers must travel and pay tolls, or the alternative is to be stuck in traffic on suburban roads.
Similar to groceries, it’s an unavoidable expense.
The ASX 200 business has 68% of tolls linked to inflation, with a further 27% rising at 4.25% per annum.
This means Transurban can pass on the impact of inflation onto customers, irrespective of whether they like it or not.
One concern investors may have is the $23 billion in debt. If rates rise, won’t Transurban’s interest cost skyrocket?
Yes, finance costs will go up. But this will be more than offset by the price increases.
Transurban even pointed this out during their most recent financial results.
Since the start of the year, the Xero share price has fallen 34% compared to just 6% for the ASX 200.
So how could Xero be an inflation hedge?
Xero is the last expense that is turned off for a business. It’s mission-critical for recording and managing finances, accounts and payments.
Pretty much the only reason a business would turn off Xero would be if the business itself went kaput.
Moreover, the business hasn’t even begun to flex its pricing power. Ask any small business owner how much they would be willing to pay more for their Xero monthly subscription.
Most would say multiples of their current plan.
No doubt rising rates will impact its valuation in the near term. But if inflation persists, I expect Xero to be able to weather any price pressure.
Information warning: The information in this article was published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169
