Rising unexpected inflation – a risk worth taking?….
For professional investors and advisers only.This document is not suitable for retail
This paper takes an-indepth look at US inflation. It outlines:
– The high uncertainty in current inflation – and why it’s so high
– Why rising inflation is an issue for institutional investors
– What type of inflation matters
– What drives inflation
– Why future inflation might not follow the rules of the past
Expectations for the future course of inflation may vary widely at the current time but we believe that investors should consider the risks to which their portfolio may be susceptible in the event of unexpected increased inflation. Policymakers have taken a substantial untested approach through the use of quantitative easing in order to avoid deflation but there may also be structural changes at play also, in the shape of demand for commodities from the emerging economies.
Our analysis shows that unexpected inflation can have a significant effect on the funding level of institutions and that it is possible that continued rising inflation will be an issue in the US. Hedging at least a portion of this risk seems sensible in the current environment. We discuss in the following paper the assets that we believe are best placed to provide this protection, whilst also providing reasonable level of returns.
In summary, we suggest considering whether it is suitable to allocate a portion of an institutional portfolio to a portfolio that aims to produce returns above inflation to hedge against the risk of rising inflation.
Disclamer
The views and opinions contained herein are those of the Azad Zangana, European Economist and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
For professional investors and advisers only.This document is not suitable for retail clients.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Schroders has expressed its own views and opinions in this document and these may change. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Services Authority. For your security, communications may be taped or monitored.
Source: ETFWorld – Schroders
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