almost 3 years ago • 2 mins
Investors have been fretting about the risk that inflation will shoot higher because, all else equal, it’ll be bad news for stocks. But not all stocks…
According to analysis by Goldman Sachs, the energy sector – think oil and gas producers – is the best sector to own as inflation accelerates, whether moderately or as sharply as it did last week.
There are a couple of reasons why. For one thing, oil and gas companies tend to outperform the broader stock market when producer prices (PPI) outgrow consumer prices (CPI). That’s precisely what April’s data showed to be the case in the US, potentially setting the stage for a rally in energy stocks.
For another thing, commodity prices tend to benefit from rising inflation: Goldman Sachs estimates that oil’s price will end the year some 70% higher than it began. If the bank’s correct, that’ll be a boon for energy companies – adding some 75 percentage points (ppts) to their annual earnings growth – and likely sending their stocks higher still.
The simplest way for investors to play this opportunity is through exchange-traded funds (ETFs) that track regional or global energy stocks. Depending on where you are in the world, you might want a European-focused fund, a US-focused fund, or a global fund. So here are three options to choose from:
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.