Inflation Protection
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Inflation Protection Model Portfolio

Monthly Portfolio Review: May 2024

Publication date: June 3, 2024

Current portfolio holdings

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Executive summary

  • We saw a bounce in equity markets in May, after a dismal April in which stocks were brought down by rising long-term interest rates and concerning inflation data.

  • The Inflation Protection portfolio delivered a total return of 4.5%, which was driven by strong performance from WESCO International (WCC), Costco (COST) and TransDigm (TDG).

  • The portfolio slightly lagged the S&P 500, which returned 5.0%, in no small part thanks to strength in AI chip maker NVIDIA (NVDA), which surged 27%. NVDA represents approximately 6% of the S&P 500 and by our estimates contributed about 1.5% to the total return of the index this month.

  • With this report, we have added a new position to the Inflation Protection portfolio at a 5% weighting: Wheaton Precious Metals (WPM).

  • To accommodate WPM, we are reducing our allocation to Lamb Weston (LW) from 10% to 5%. LW shares have recovered sharply since we noted the early April overreaction to its botched enterprise software transition.

Performance review

The Inflation Protection portfolio produced a total return of 4.5% in May, slightly behind the S&P 500 Index, which delivered a 5.0% return. Individual position returns ranged from -4% for Brown-Forman (BF) to 18% for WESCO International (WCC).


Markets rebounded after ending April on a stagflationary note. April ended with 10-year Treasury yields at their highest level year-to-date at 4.68%. The S&P 500 Index recovered from its 4.1% decline in April, as the trajectory on interest rates reversed in response to some better data points on the inflation front. The 10-year Treasury yield ended May at 4.49%.


In addition to interest rates, a key driver of overall market performance was once again AI semiconductor champion NVIDIA (NVDA). NVDA shares surged 27% over the course of the month, in response to strong earnings results and some excitement around its announced 10:1 stock split.  


With a $2.7 trillion market capitalization, NVDA now represents approximately 6% of the S&P 500 Index, only slightly trailing Microsoft (MSFT) and Apple (AAPL). These three stocks combined now account for nearly 20% of the S&P 500. We estimate that NVDA’s strength this month contributed approximately 1.5% to the 5.0% total return of the S&P 500.  


Using SPDR Sector ETFs as our frame of reference, rate sensitive sectors led the way in May, after having been among the biggest laggards in April.


Utilities were the best performing sector of the S&P 500, delivering a 9% total return. Utility stocks have generally benefited from lower rates as well as growing perception that they will see enhanced earnings growth from the AI-driven electrification trend. Technology and communications services also performed well. 

With oil prices retreating to their lowest levels since February, the energy sector did not participate in the broader rally in stocks and was flat for the month.

While oil markets were softer, elsewhere in commodities, gold and copper were essentially flat after very strong positive performance in the prior two months.

Portfolio highlights

With the publication of this report, we are adding a new position. Wheaton Precious Metals (WPM) joins the portfolio with a 5% weighting.


WPM is a metal streaming company which derives nearly all of its revenue from precious metals, approximately two-thirds gold and one-third silver. The portfolio now contains three gold-related royalty/streaming investments, which also include Franco-Nevada (FNV) and Royal Gold (RGLD). All three are assigned a 5% weighting.


Our decision to add WPM is based on our constructive long-term view of gold and other precious metals and our assessment that a somewhat higher exposure to the asset class is appropriate for the Inflation Protection portfolio.


These streaming/royalty companies offer leverage to potential upside in gold and other metal prices without the degree of operating risk typically associated with mining companies. They each have strong balance sheets, which provide a foundation for future growth, and collectively provide highly diversified exposure to the production of some of the world’s most important gold mines.


Over the past 10 years, each of these stocks has delivered total returns in excess of the gold price, albeit with greater volatility. We continue to favor ownership of gold, either directly as a physical asset or indirectly through ETFs or other financial instruments. We view the royalty/streaming companies as another attractive option through which investors can diversify their exposure and generate positive returns from precious metals as an asset class.

With the addition of WPM, we now have 25% of the Inflation Protection portfolio allocated to metals, including Freeport-McMoRan (FCX), which is primarily a copper play (although the company does operate one of the largest gold mines in the world).


While investors should expect copper prices to be somewhat volatile, and this will likely flow through to the FCX share price, we continue to favor the long-term supply/demand dynamic for copper. Pierre Andurand, who runs a multi-billion dollar commodities-focused hedge fund, recently shared his view with the Financial Times that copper could see approximately four-fold returns from current levels.

I think we could end up to $40,000 per tonne over the next four years or so. I’m not saying it will stay there then; eventually we will get a supply response, but that supply response will take more than five years. - Pierre Andurand

We are not counting on copper running to such a level but agree with him, given supply constraints, that significant upside in the copper price is in the realm of possibility. Any material copper price appreciation would likely translate into significant cash flow growth at FCX.


To fund the incremental allocation to WPM, we have reduced our allocation to Lamb Weston (LW) from 10% to 5%. In our April 8 note to Inflation Protection Model Portfolio subscribers, we reiterated our commitment to LW at a 10% weighting after it had fallen sharply following reports of its botched enterprise software transition. Our view at the time was that the market was excessively penalizing LW shares for what is likely to be a temporary impact to earnings.


Since then, LW shares have appreciated approximately 11%, well ahead of the S&P 500, which has advanced less than 2%. We continue to like LW but given the operational uncertainties that remain and the improved valuation, we are reducing the portfolio weighting to accommodate the addition of WPM.

The Inflation Protection portfolio’s performance in May was driven by WESCO International (WCC), which returned 18%; Costco (COST), which returned 12%; and TransDigm (TDG), which returned 8%.


These positive contributions were somewhat offset by a -4% return from Brown-Forman (BF).


WCC rebounded sharply after over-participating in the broader April decline in stock prices. We note with interest that Baupost, the hedge fund run by famed value investor Seth Klarman, initiated a position in WCC during the month.


COST benefited from a strong earnings print, with market share gains and high membership renewals. This led to a wave of analyst target price increases.


COST was recently profiled in the Financial Times for its success as an “inflation wave winner.” Rising prices generally benefit retailers, who earn a margin on the nominal cost of goods sold. But COST in particular has done well because of its ability to deliver value as household budgets are squeezed.


COST also benefits from commercial positioning that tilts towards relatively more affluent consumers, who are less pinched economically than middle and lower income consumers. COST’s successful program of selling gold bars online demonstrates that it continues to have its finger on the pulse of consumer trends.


TDG shares similarly advanced following a strong earnings result and outlook earlier in May.


BF continues to struggle somewhat, with muted spirits demand which is in part attributable to household liquor levels still elevated from the pandemic buying wave. We are still attracted to the structural growth, pricing and premiumization opportunity for BF, especially in the whiskey category.

Key metrics

Valuation detail

Performance detail

Company snapshots

Brown-Forman (BF.B)

Costco Wholesale (COST)

Freeport-McMoRan (FCX)

TransDigm Group (TDG)

Visa (V)

Vulcan Materials (VMC)

Diamondback Energy (FANG)

Floor & Decor Holdings (FND)

Franco-Nevada (FNV)

Lamb Weston Holdings (LW)

Permian Resources (PR)

Royal Gold (RGLD)

WESCO International (WCC)

Wheaton Precious Metals (WPM)

The 76research Inflation Protection Model Portfolio emphasizes business models that are expected to perform well on a relative basis in periods of elevated inflation. Holdings are typically drawn from industries based on supply constrained real assets, including commodity and energy businesses, or companies that otherwise demonstrate superior pricing power. The portfolio may from time to time include certain ETFs when broader asset class opportunities emerge that align with the theme. Drawing from an investable universe of expected inflation beneficiaries, specific holdings are chosen based on valuation and general business quality, growth and risk considerations. 

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