Bank of America advises investors to diversify asset allocations, suggesting a shift away from sole reliance on tech and US Treasuries due to persistent inflationary pressures. The bank's strategists recommend focusing on real assets, value stocks, and specific sectors to hedge against potential stagflationary environments.
Inflationary Concerns Prompt Portfolio Rethink
Recent economic data indicates that inflation remains elevated, prompting financial experts to advise a strategic reassessment of investment portfolios. According to Bank of America, the Consumer Price Index (CPI) rose by 0.6% in April, pushing the year-over-year rate to 3.8%—the highest level since May 2023. Furthermore, wholesale inflation increased by 1.4% last month, marking its fastest annual gain since December 2022.
Jared Woodard, an investment and ETF strategist at Bank of America, noted that the current economic climate requires a different approach than the low-inflation, globalization era of 2000–2019. He stated, "Today, the urgent task for asset allocators is to prepare for inflationary boom and stagflationary bust scenarios."
Recommended Inflation-Hedged Investments
The bank highlighted several asset classes and specific Exchange Traded Funds (ETFs) that are positioned to benefit from inflationary trends and economic volatility.
1. Real Assets: Metals, Mining, and Infrastructure
Real assets have been identified as a strong hedge. Strategists pointed to ETFs covering metals and mining, as well as Master Limited Partnerships (MLPs), noting that these sectors are trading below their long-term average valuations.
- Metals and Mining: The iShares U.S. Basic Materials ETF (IYM) was recommended, showing gains of over 20% year-to-date and carrying an expense ratio of 0.38%. Constituents include Freeport McMoran, Nucor, and Newmont.
- MLPs: The Tortoise North American Pipeline ETF (TPYP) was highlighted as the MLP play, up nearly 23% year-to-date with an expense ratio of 0.4%. It offers a current yield of about 3.2% and includes companies like TC Energy and Enbridge.
- Nuclear Power: Given forecasts for uranium prices, the Global X Uranium ETF (URA) was suggested. This fund has seen a 22% increase this year, has an expense ratio of 0.69%, and offers a current dividend yield of nearly 4%.
2. Small-Cap Value Stocks
The strategists also recommended focusing on small-cap value stocks, citing them as one of the least expensive investment opportunities, even after recent gains.
- U.S. Small Cap Value: The iShares US Small Cap Value Factor ETF (SVAL) was listed, showing a 14% gain this year with a low expense ratio of 0.20%.
- International Small Cap Value: The Avantis International Small Cap Value ETF (AVDV) was recommended for international exposure, having risen 17% in 2026 and maintaining an expense ratio of 0.36%.
