Best and worst sectors to invest in during high inflation

Data collected by BlackRock shows that the best sector to invest in during high inflation is the energy sector, followed by healthcare and telecoms. The worst sectors include retail, technology and durable goods. 

This was revealed in BlackRock’s equity market outlook for the third quarter of 2023, where the company outlines where it thinks opportunities lie for investors. 

BlackRock is the largest asset manager in the world, with $8.6 trillion in assets under management.

Despite a slowdown in economic growth, high inflation, and a deteriorating geopolitical environment, the asset manager sees good opportunities for investors to generate outsized returns. 

It thinks that economic volatility and high inflation will create substantial company performance disparities, generating good returns. 

However, this may also generate outsized losses as the company’s analysis shows that the gap between ‘winners’ and ‘losers’ is wider than it has been for a decade. 

BlackRock encouraged investors to focus on the fundamentals of companies, such as profitability, cash generation, assets versus liabilities, and growth potential. 

The key is to identify companies that can maintain strong earnings at a time when core inflation remains high, and the costs of materials are coming down.

BlackRock is particularly interested in the healthcare and luxury sectors as they have historically proven resilient to inflation. 

Companies in these sectors tend to have strong fundamentals and pricing power, allowing them to pass through price increases to customers without losing sales. 

These characteristics mean that these companies tend to outperform those from other sectors during periods of high inflation. 

This is shown in the graph below, where sectors’ earnings growth and returns during periods of high inflation. 

The left chart shows 12-month trailing earnings-per-share growth for select sectors of the MSCI World Index, Dec. 2020 to April 2023.

The right chart shows the top and bottom industry returns during inflationary periods from August 1939 – August 2012.