Investors used to a benign inflationary environment can no longer rely on their savings accounts to produce an inflation-beating return, unless they want savings to be eroded over the long term.

Adrian Lowcock, senior investment manager at Hargreaves Lansdown, has picked three funds which he expects to help protect investors if inflation does shoot higher this year.

Equity Income

In the last 3 years Equity Income funds have managed to beat inflation, growing 36.47% compared to the 13.21% RPI has eroded the value of money. As such, it is a natural choice for investors looking to protect portfolios.

Recommendation

Artemis Income – Lowcock’s pick in this space is Adrian Frost’s Artemis Income fund. An experienced manager, coupled with a dividend of 4.4%, are among its attractions.

Gold

Gold has historically been a good store of value and protected investors against inflation and deflation.

Just buying the precious metal itself via an ETF has become a very popular strategy for many investors, but for those investors who want something more punchy, gold equities are an option.

In recent years gold equities have stopped tracking the gold price, so while gold itself has returned 50.42% in three years, many gold funds have failed to make any gains.

But, with gold mining equities so depressed, now could be the opportunity to invest after years of underperformance, as the higher gold price feeds through into their businesses.

Recommendation

Blackrock Gold and General – Continued quantitative easing could benefit commodities in the short term, while gold equities could also see a more sustained uptrend if dividend payments increase, says Lowcock. This fund – run by Evy Hambro – invests in both gold and gold shares.

Inflation hedge

Some managers have inflation on their mind and structure their portfolio to address current and future changes in inflation. To do this the fund must be able to invest in a wide range of assets such as equities, bonds, cash and gold.

Recommendation

Troy Trojan – Manager Sebastian Lyon believes the actions of Western governments will ultimately end in higher inflation, but does not rule out a spell of deflation beforehand. He has therefore prepared for both eventualities. Lowcock says the fund’s equity and bond exposure should help offset the effects of high inflation.