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Need some inflation protection?

25 November 2021 by National Bank Investments
NBI Monthly Edition – December 2021

With holiday shopping well underway, consumers won’t be the only ones bearing the brunt of inflationary pressures this season. As economies reopen and countries emerge from the pandemic, supply chain disruptions are also having an impact on retailers and the prices of everything from cars to furniture and household appliances.
On the surface, rising prices and supply shortages may seem unsettling, but in the eyes of policymakers, all of this is short-lived. As inflation continues to overstay its welcome, is there a way for investors to soften its impact?

Infrastructure as a safe haven

Investments in real assets such as listed securities of real estate and infrastructure companies are a great way to help mitigate adverse inflation impacts. Why?

  1. Unique regulatory treatment
    Infrastructure companies are regulated in a way that they are less vulnerable to inflationary spikes. For instance, if an increase in interest rates threatens their bottom line, these companies have enough power to increase prices and keep profitability in check.
  2. Favourable contractual provisions
    Infrastructure companies often incorporate clauses in their contracts to adjust charges for inflation. In essence, contractual provisions allow the asset owners to pass on inflation concerns through higher unit prices such as rents, utility rates and tolls. 

The chart below showcases how global infrastructure generally tracks or exceeds inflation dictated by CPI, supporting the case that infrastructure can offer inflation protection.

Global Infrastructures vs Consumer Price Index

Stability in cash flows and dividend growth

Other key features of global infrastructure are the high barriers to entry and the physical assets, which are difficult to replace and often essential for society to function (such as utilities). Infrastructure assets tend to benefit from predictable rising cash flows due to inelastic demand and monopolistic traits. This enables them to have a steady stream of cash flows over the long run and leads to strong dividend growth across multiple market cycles and macroeconomic scenarios.

In short, investors concerned with both long-term inflationary trends and near-term pricing surprises may find it worthwhile to investment in infrastructure and real assets!

Investing in NBI’s Global Real Assets Income Strategy

One might think that higher interest rates and inflation affect the financial performance of all businesses in the same way. In reality, this couldn’t be further from the truth. As shown, interest rates and price pressures have less influence on infrastructure investments than most investors think.

Why invest in this Fund?

By investing in the NBI Global Real Assets Income Strategy, you can benefit from:

  • Possible mitigation against higher interest rates and inflation
  • High dividend yield potential
  • Enhanced diversification due to the low correlation between real assets and traditional stocks and bonds

Learn more about the NBI Global Real Assets Income Fund and the NBI Global Real Assets Income ETF.

 

 

Legal notes

The information and the data supplied in the present document, including those supplied by third parties, are considered accurate at the time of their printing and were obtained from sources which we considered reliable. We reserve the right to modify them without advance notice. This information and data are supplied as informative content only. No representation or guarantee, explicit or implicit, is made as for the exactness, the quality and the complete character of this information and these data. The opinions expressed are not to be construed as solicitation or offer to buy or sell shares mentioned herein and should not be considered as recommendations.

NBI ETFs are offered by National Bank Investments Inc., a wholly owned subsidiary of National Bank of Canada. Management fees, brokerage fees and expenses all may be associated with investments in exchange-traded funds (“ETFs”). Please read the prospectus or ETF Facts document(s) before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. ETF units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns. NBI ETFs do not seek to return any predetermined amount at maturity.

The MSCI index provider (MSCI indices) is licensing its indices “as is”, makes no warranties regarding same, does not guarantee the suitability, quality, accuracy, timeliness and/or completeness of its indices or any data included in, related to or derived therefrom, assume no liability in connection with its use and do not sponsor, endorse or recommend National Bank of Canada and its wholly owned subsidiaries any of their products and services. No responsibility or liability shall attach to the index provider or its respective directors, officers, employees, partners or licensors for any errors or losses arising from the use of this publication or any information or data contained herein. In no event shall the MSCI index provider be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, legal or other expenses, or losses (including, without limitation, lost revenues or profits and opportunity costs) arising out of or in connection with the use of the content, even if advised of the possibility of such damages.

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® NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under license by National Bank Investments Inc.

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