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Reasons for cautious optimism

Reasons for cautious optimism
May 24, 2022
Reasons for cautious optimism

On any count, it’s not an easy time to be an investor. Elevated inflation and a worsening economic outlook are competing for our attention, with UK Consumer Price Index inflation hitting a 40-year high of 9 per cent last month and the Bank of England warning of a recession on the horizon. This is particularly bad news for cash savings. While the Bank has raised its rate to 1 per cent, recession risk, and excessive corporate and national debt, make it likely that inflation could sit persistently above interest rates for a while yet. 

So what are investors to do? Peter Spiller, manager of Capital Gearing Trust (CGT) which has a wealth preservation focus, said that he has become "much more active in seeking out assets that can protect shareholders against inflation". This has led to Capital Gearing trust having a higher allocation to asset classes such as property and infrastructure. 

Among property investments, he likes "beds, meds and sheds" owing to their propensity for index-linked long-term contracts with credit worthy companies. However, he also notes that the one thing that would be bad for property would be a significant rise in real interest rates. Similarly, infrastructure trusts would suffer with higher interest rates, but a rise in power prices creates a tailwind for the net asset value of renewable energy investment trusts.    

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