High-Inflation Environment Stocks and ETFs

Seeking Alpha has a “Top Stock for A High-Inflation Environment” competition. They are looking for an analysis of a stock that will be able to survive and thrive as inflation strikes. In order to find suitable stocks for this competition I have defined a high inflation environment when:
$Inflation_6moAvg >3.0 & $Inflation>($Inflation_6moAvg+0.75)

The formulas are:
$Inflation_6moAvg = (LoopAvg(“Close(CTR,#CPI)/Close(CTR+12,#CPI)”,6)-1)*100
$Inflation = ((close(0,#CPI)-close(12,#CPI))/close(12,#CPI))*100

I found that sectors RBICS(MATERIALS,ENERGY,UTIL) do best during periods when inflation is high.
Here is a 2-year sim selecting 20 stocks from the S&P500 with the simple Magic Formula ranking system.
Annualized return= 65%


I was hoping to see more substance and wisdom but all I got was “magic” formula.

Hi - all power users of P123. If one was to use a ranking system (eg value) when inflation is high and another when when inflation is low, how does one do that?

I want to test the hypothesis that Value does better during times of inflation.

Thank you

You could do it simply with an eval function in a screener. I made a simple one for you here.
https://www.portfolio123.com/app/screen/summary/270026?st=0&mt=1

Use a line like this.
eval(close(0,##inflexp)>=3,rating(“core: value”)>90,rating(“core: growth”)>90)

But you can also use eval functions at the ranking system level. Have it something similar to this but have a specific value factor ranked and a specific growth factor ranked for each of the 2 conditions instead of referencing established ranking systems.

This would be an example of a 4 factor ranking system that toggles between value and glamour. But I wouldn’t start building a ranking system right away. I think I would want to test broadly at what point, if any, there is a change in factor returns based on the level of inflation. Then test what factor themes and styles work best. Then I would go to work isolating individual factors for either regime that makes sense to switch between.

https://www.portfolio123.com/app/ranking-system/395987

And one other thing I might be inclined to test is to create a simulation that has a buy side rule where inflation must be >= x%. Sell rule is true. This will quickly isolate your periods where inflation is high.
Then run the optimizer and go through dozens of factors and ranking systems to find what works best.

I found this article interesting. The value factor does not look very good (in inflationary periods), but trend, momentum and quality looks good.

In the screener this rule works well:
eval(close(0,##inflexp)>=3,rating(“core: Low Volatility”)>80,rating(“core: sentiment”)>80 & rating(“core: growth”)>80)

This is for the S&P500 and 20 positions. Annualized return 15% from 1999 and 18% from 2009.


I think all strategies could benefit by attuning them to inflation.

For an example see my ETF model which shows a simulated 39% annualized return without using leveraged ETFs. A full description is on Seeking Alpha.
https://seekingalpha.com/article/4511495-inflation-attuned-market-timing