Prepare for higher inflation with this great Canadian ETF

Inflation has been in the headlines lately, and for good reason. We have not seen inflation at these levels since the end of the Great Financial Crisis (GFC). At the time, inflation was not staying at problematic levels.

While most experts see the recent rise in inflation (over 3% in Canada and over 4% in the United States), given the supply constraints induced by the pandemic and the overwhelming demand for certain assets , I think savvy investors should play both sides of the coin. While inflation may recede as it did in the aftermath of the GFC, it’s important to remember that the circumstances are very different this time around. The scale of the stimulus in response to the COVID-19 crisis is simply unprecedented.

Of course, inflation must have been a side effect of this printing of money. That’s why I urged investors to be ready for a potentially drastic growth / value rotation in January. Overvalued growth stocks had the most to lose as inflation returned to its ugly head. And now, here we are. Growth stocks took a hit to the chin, while most value stocks ignored volatility, gradually increasing as their growth peers slumped.

“I think it’s prudent for Canadian investors to reassess their portfolios if they are overexposed to the frothy areas of the market,” I wrote in early January 2021, warning investors of a growth-to-value rotation.

“The valuations, as a whole, aren’t as ridiculous as they were in the late 1990s. That said, there are probably a lot of bubbles floating out there that are in danger of bursting. Fortunately, I believe the effect of these bubble bursts will be mostly limited to a few names and those who have diversified their portfolios may not even notice the impact. “

Fast forward to today and we were hit with exactly the kind of spin I was asking for.

Speculative bubbles and expensive growth stocks are now being corrected, with 2020 hits like Bitcoin and You’re here now over 30% of their peaks. Meanwhile, the value-heavy TSX Index and Dow Jones Industrial Average are breathtaking from their all-time highs. For those who haven’t been looking for performance, you may have missed the pain of the past few months in the fastest growing parts of the stock market.

Inflation could continue to derail growth strategies

As we move towards an inflationary or reflationary environment, many of us are entering uncharted territory. Inflation hasn’t really been a problem for many investors. Many of us may have underestimated its impact on inventory. Advances in technology have served as a disinflationary force for all these years, after all. For many investors, this is a confusing time. And for those who have continued to grow, it is as painful as it is confusing.

In this article, I’m not going to make another call, as I have no idea whether the Fed will be right or wrong in being so accommodating. Instead, I’ll draw your attention to a name that can help you be prepared if the Fed continues to delay rate hikes despite higher than expected inflation. While the latest set of CPI numbers may be higher than expected, there is also a risk that such inflation may persist longer than expected – perhaps much longer.

With the recent damage already done to the fastest growing stocks, I think it’s too late to sell. However, if you are light on value stocks and have nightmares about the Fed’s loss of credibility, it may be worth having a strong preference for value with any money you want to invest in the future. .

One-stop-shop Canadian ETF

Take into account BMO Low Volatility Canadian Equity ETF (TSX: ZLB), a diverse basket of low-volatility, primarily value stocks, many of which have juicy (and growing) dividend payouts. Now, the label of “low volatility” may be a misnomer, given that the ETF collapsed hand in hand with the broader indices during the coronavirus market crash. That said, the ETF’s constituents are pretty compelling, and many of them are overlooked value stocks that I believe should outperform if inflation persists much longer than expected.

The ZLB is a great low beta Canadian ETF comprised primarily of value names that should be considered a one stop shop for those looking to get into value trading.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool service or advisor. We are Motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we’re posting sometimes articles that may not meet recommendations, rankings or other content. .

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