Is This Sector Your Best Hedge Against Inflation?

With rising inflation heavy on investors' minds these days, many are looking for resilient market sectors to put their capital to work. In this clip from "The Rank" on Motley Fool Live, recorded on Jan. 31, Fool.com contributors Jason Hall, Dan Caplinger, and Matthew Frankel, CFP®, discuss why they think the real estate sector could be a promising place to invest in the current economic environment, and what headwinds to watch out for.

Matt Frankel: This is real estate investment trusts that used to be part of the financial sector. I ranked this the highest of the three. I ranked this as my No. 3 out of all of them, which is where it fell. I like real estate in the current environment. Not only because there are a lot of great sector and sub-sector tailwinds. Jason mentioned healthcare earlier, for example, I mentioned industrial. I think has a really great potential. Hotel real estate, I think has really great potential in the current environment as travel starts to gradually continue to get back to normal. I also like real estate because it's a big inflation hedge. Historically, real estate rents and property values, have done a great job of keeping up with inflation. I like this in the current environment for a couple of reasons, inflation and a lot of great tailwinds in the sectors. Guys, any thoughts on real estate?

Jason Hall: I agree with that. I think we've seen a big trend toward private REITs and toward a lot of money going that way. I think we're going to see a lot more money start coming back into the public REIT sector. Opendoor, for example, is in the real estate sector as far as the way the sectors are created. I think you get exposure to a lot of that disruption as well. Redfin's a company that I like a lot in that space, too. You get exposure to those companies as well. I think we're going to continue to see all of the things with rising housing prices are going to continue to drive value there. You don't get the home builders in that sector. They are in one of the consumer goods buckets. Again, it's just the nature of the way the sectors are structured. But you get exposure to a lot of the ways that the investors can make money exposed to real estate. I think, as a sector, this is going to outperform the market as a whole. Dan.

Dan Caplinger: I dinged real estate just a little bit because some parts of it have some interest rate exposure and so higher in cap rates, I think you have some questions as to how much the housing market is going to hold up. Impact on commercial real estate is a little bit less clear. Again, one-year time horizon, I had it in my top half. It's definitely an inflation hedge better than utilities. But that's why I put a No. 5 on my list and I totally understand the arguments everybody else's making for it.