'The best sweet spot': Buy these inflation-beating funds to protect your money, strategist says

Published Sun, Sep 18 20228:17 PM EDT

As inflation remains stubbornly high, and volatility in U.S. stocks and bonds persists, one strategist has shared his top ways for investors to protect their income. It comes after consumer prices stateside rose again in August , with the annual consumer price index remaining above 8% for six straight months. Mark Jolley, global strategist at CCB International Securities, said that central banks have more tightening to do and recession is "all but inevitable." "For the next six to 12 months in the U.S. … the best option is not to invest now, but to wait just a couple of months," he told CNBC's "Street Signs Asia" earlier this month. If investors want to get into the market, however, he advised them to look beyond the U.S. and consider European inflation-indexed bonds. "Because you're going to have very high U.S. inflation over the next few quarters, which is probably going to give you a decent return, given how weak the euro is," Jolley said. High inflation increases the chances of the U.S. Federal Reserve raising rates further, which tends to mean a stronger dollar. The weaker euro could then exacerbate inflation in Europe — causing euro inflation-linked bonds to do well. His picks include the iShares Euro Inflation Linked Government Bond UCITS ETF and the iShares TIPS Bond ETF . Meanwhile, Morningstar said in a note last week that inflation-linked bonds issued from May through October 2022 offered an attractive yield of 9.62%, but pointed out there are some drawbacks. These include a purchase limit of only $10,000 per year — restricting for larger investors — as well a lack of liquidity, as they only pay out when they are sold at least 12 months after purchase. Morningstar's top picks in the space include the Vanguard Short-Term Inflation-Protected Securities Index and the Schwab U.S. TIPS ETF. Commodity funds Jolley expects food prices to go even higher in the next 12 months, citing droughts followed by floods in the U.S. recently. That's a bad combination for agricultural output, and high gas prices will contribute to higher fertilizer prices, he added. He said investors could play higher agricultural prices via the Invesco DB Agriculture Fund . Morningstar also picked a commodity fund to battle raging inflation in its recent note: the Pimco Commodity Real Return Strategy Fund . It said this bronze-rated fund is "one of the best commodities plays." The 'best sweet spot' As U.S. investors scramble to navigate continued volatility, particularly in stocks, Jolley said the "brave" could consider stocks overseas. "If you are prepared to be a bit brave, if I was a U.S. investor, I would be looking to accumulate equities abroad. I'd be looking to buy equities in countries that have not a lot of debt, because in a higher interest rate environment ultimately those markets are going to do well," he told CNBC. "Right here right now. I think the market that's in the best sweet spot for performance is probably the A-share market because you have diminishing inflationary pressure at this point in China," Jolley said, referring to shares trading in mainland China. His pick for a China A-share fund was the iShares A-share ETF .