Stubborn inflation continues to loom over the economy, necessitating strategic adjustments in investment portfolios to mitigate the impacts of rising prices, as outlined by Bank of America. Recent economic data reinforces the persistent inflationary pressures, indicating that the road to the Federal Reserve’s target inflation rate of 2% remains lengthy. The consumer price index recorded a 0.6% increase in April, lifting the annual growth rate to 3.8%, the highest level observed since May 2023. At the wholesale level, prices surged by 1.4% last month, resulting in a year-on-year increase of 6%, marking the fastest rise since December 2022.
These shifts in inflation dynamics have prompted a reassessment of asset allocations, as noted by Jared Woodard, an investment and ETF strategist at Bank of America. In a recent communication, Woodard emphasized the need for asset allocators to brace for scenarios of inflationary booms and stagflationary busts, contrasting today’s environment with the period from 2000 to 2019 characterized by low inflation, rapid globalization, and deflation driven by technology.
To capitalize on the inflationary environment, Woodard and his team identified several promising investment opportunities. Among these, commodities have emerged as a strong choice. With copper recently achieving record highs and oil prices remaining robust amid geopolitical tensions, particularly the Iran conflict, the strategists are particularly bullish on stock ETFs focused on metals and mining, as well as master limited partnerships (MLPs). These sectors are currently trading below their long-term average valuations.
Highlighted in their recommendations is the iShares U.S. Basic Materials ETF (IYM), which has seen a year-to-date gain of over 20% and features an expense ratio of 0.38%. This fund includes significant holdings in companies like Freeport McMoran, Nucor, and Newmont, all of which are expected to see double-digit advances by 2026. The Tortoise North American Pipeline ETF (TPYP) represents the bank’s MLP investment choice, with a nearly 23% increase this year and an expense ratio of 0.4%. Notably, this ETF encompasses firms such as TC Energy, Enbridge, and The Williams Companies, and offers a dividend yield of around 3.2%.
Additionally, the bank’s focus extends to the nuclear power sector, with projections from their commodities team anticipating uranium prices to hit $135 by 2027, potentially breaking previous records. The Global X Uranium ETF (URA) is singled out as a key investment in this area, having risen 22% this year and including holdings such as Oklo and Uranium Energy. This ETF features a 0.69% expense ratio and currently provides a dividend yield nearing 4%.
Moreover, Bank of America’s strategists underscored the value inherent in U.S. small cap stocks, particularly in the value category. These stocks have remained relatively inexpensive despite their year-to-date returns of 15% to 17%. The team advocates for international small cap value stocks as well, recommending the Avantis International Small Cap Value ETF (AVDV), which has appreciated 17% in 2026 and has an expense ratio of 0.36%. Another highlighted choice is the iShares US Small Cap Value Factor ETF (SVAL), which has gained 14% this year with a low expense ratio of 0.20%.
As inflation continues to affect economic conditions, the strategies laid out by Bank of America suggest a critical need for investors to revisit their asset allocations and consider opportunities in commodities, uranium, and small cap value stocks to navigate the evolving financial landscape.
