Stocks to protect you from a ‘winter of discontent’

Rising energy bills, labour shortages and snaking queues at petrol stations have made inflation a favourite dinner party conversation topic.

But concerns have moved on in City strategy rooms, with professional investors now focusing on “stagflation”, the toxic combination of inflation and low economic growth.

Those fears have taken hold, with more than half of City insiders polled by Deutsche Bank believing the British economy now faces a “high” or “very high” risk of stagflation. They are forecasting a strong likelihood of either zero growth or economic contraction, combined with inflation “well above” the Bank of England’s 2pc target. Stagflation would have implications for the stock market and shift the goalposts for DIY investors.

“Growth” stocks, prized for their fast-growing profits, typically perform badly when inflation is rising, but could do well if that inflation is coupled with stagnant economic growth, according to James Henderson, of fund group Janus Henderson. “The natural defence against stagflation is to own companies that can grow regardless of the health of the economy or rises in inflation and interest rates. For me, that means companies involved in clean energy,” he said. Mr Henderson invests in hydrogen companies Ceres Power, ITM Power and AFC Energy.

David Coombs, manager of the £1.4bn Rathbone Multi-Asset Strategic Growth Portfolio, said another option was to buy shares in companies with leading brands which were able to pass on higher prices to consumers.

He said it would be savvy for investors to use a sell-off to buy shares in the likes of Apple, Nike, Coca- Cola or Microsoft, despite them being priced highly and vulnerable to a share price shock if stagflation fears took hold. He said gold should offer protection should economies fall into 1970s-style stagflation.

Popular options for DIY investors include Invesco Physical Gold, a fund that tracks the price of the precious metal, or BlackRock Gold and General, which buys gold mining stocks.