In the hands appears with a dollar sign concept design.
The chicken littles fretting about inflation are ignoring something: the “bonus” $2.9 trillion that’s primed to ignite stocks—one group of stocks in particular.
The $2.9 trillion isn’t a new stimulus plan (although those seem to roll out daily). It’s the extra savings hoarded by consumers around the world. To put that in context, global GDP is about $89 trillion, so the total saved will amount to 3.3% of extra growth when it’s finally unleashed.
Global savings during lockdown
You’d think most economists would have already accounted for this savings glut in their projections. You’d also expect markets to price in this information. But neither is the case.
Even with this saved-up cash ready to flow into the global economy, markets have traded pretty much flat. The NASDAQ
This lackluster performance is because inflation worries are dragging on stocks, with the yield on the 10-year Treasury note having nearly doubled from record lows last year. But when you factor in the pent-up demand that’s about to be unleashed, and the fact that inflation is good for stocks, since higher prices mean higher revenue and earnings in nominal-dollar terms, you get an obvious buying opportunity.
We can take advantage of this strange market moment by buying the dip, and we can amplify our gains by choosing the market that’s the most undervalued: global stocks.
If we zoom out to before the pandemic started, we see that the Fidelity Global Ex-US Index (FSGGX) lags far behind the NASDAQ and the S&P 500. (As its name says, this fund excludes US stocks entirely, unlike URTH in the previous example).
While FSGGX is a great way to get into this still-underbought asset class, it isn’t the best way. Because there’s another fund with a nice collection of non-US assets and some still-undervalued US names, too. Plus we can buy this fund at a discount and get a higher yield than the 1.7% FSGGX pays.
That fund is the BlackRock
We’ve seen BOE improve its portfolio in recent quarters. It’s worth noting, for example, that 20% of its portfolio is in stocks from the UK, which has been a leader in getting its people vaccinated. Meantime, BOE’s portfolio downplays some countries that have been vaccine laggards (the fund holds no stocks from Germany and Japan, for example).
A 2021-Ready Portfolio
BOE Holdings
The end result is a portfolio nicely positioned for the coming jump in consumer spending, like Amadeus IT Group SA (AMADY), BOE’s seventh-largest holding, whose software is used by the travel industry. Owning this stock now, when people are eager to travel but can’t do so quite yet, is a savvy move.
Similarly, lots of pent-up spending will flow through the payment network of Visa
In short, BOE has collected a portfolio of value-driven companies from the US and around the world that haven’t fully priced in the coming rise in consumer spending, while paying a 6.9% dividend that rolls out monthly. Those strengths make it a fund worth paying attention to.
Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report “Indestructible Income: 5 Bargain Funds with Safe 8.3% Dividends.”
Disclosure: none
