With the threat of inflation back at the forefront for many investors, there’s one large stock-market investor positioning for it to be a decade-long phenomenon.
In a note posted to the firm’s website, Chief Investment Officer William Smead of Phoenix-based Smead Capital Management, which oversees $5.83 billion in assets, said “we are loaded with inflation beneficiary stocks like oil and gas stocks and useful real estate.” The firm likes home builder D.R. Horton DHI, +1.22% ; Simon Property Group SPG, +0.68%, a real estate investment trust that invests in shopping malls; and energy company APA Corp. APA, -1.
All three major U.S. stock indexes were down in the final hour of trading on Wednesday, after ISM data showed the services sector expanded for an eighth straight month in August. The report, which reignited worries about inflation, pushed two-month through 10-year Treasury yields BX:TMUBMUSD10Y higher, and slightly nudged up the market-implied likelihood of another Federal Reserve rate hike in November or December.
“Unfortunately, the government is discouraging fossil fuel production, so get ready for high oil prices for a long time. Throw in labor demanding higher wages and you get both cost-push and demand-pull inflation like what we saw in the 1970s. As inflation becomes a decade-long problem, we believe you will see growth stock price-to-earnings multiples contract over time.”Smead is lead portfolio manager for the firm’s almost $4.7 billion Smead Value Fund, which invests in large cap U.S.
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