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As discussed in my latest white paper, An allocator’s agenda for a reflating world, I’m concerned that many asset allocators seem to remain stubbornly positioned for a world of falling bond yields, declining inflation, and low economic growth. In my view, this is largely due to what I call a persistent “status-quo bias,” rather than much in the way of active positioning for the realities of today’s evolving global landscape.
As a result, I believe many clients have portfolio positioning that is ill-equipped to successfully navigate the potentially reflationary period ahead. The remedy? While I certainly don’t recommend a wholesale shift to all “reflationary” assets, I think one important item on every allocator’s “to-do” list should be…
In our last blog post, we described the secular forces that we believe are driving the transition to a new fixed income reality characterized by more frequent market dislocations. Here, we lay out four steps investors can take to build a new fixed income allocation that is equal to today’s challenges and opportunities.
It’s best to start with what we know has changed. We know that inflation may be poised to rise in many countries, which could have important implications for global currencies and interest rates. We know also that the fixed income markets have evolved to become increasingly…
My previous inflation-related blog posts have focused on the debate around the threat of rising inflation going forward and on the potentially disruptive portfolio effects of higher inflation, particularly how it can upend the traditional equity-bond relationship in client portfolios. This time, I’d like to: 1) explain why the specific source of the inflation matters; and 2) provide a “playbook” of sorts to help asset allocators monitor and mitigate inflation risk based on its source.
Many investors use standard inflation indices, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI), to track changes in inflation over time. While useful to a degree, these broad indices are only intended to serve as…
This is the third in my inflation “series” of blog posts based on ongoing client conversations. In the first one, I explained why rising inflation is not an imminent threat, but could be down the road. The next one compared today’s inflation worries with those that arose following the 2008 global financial crisis. Now I’d like to shift to a topic of even greater interest to many clients: the implications of higher inflation for investor portfolios.
Inflation can affect a portfolio in multiple ways over time. One way is through its potentially profound impact on the basic equity-bond relationship, which is typically critical to the performance and resilience of a diversified portfolio.
Bonds have often rallied (or at least mitigated downside) during equity market selloffs, thereby providing portfolio diversification benefits. What some investors overlook is…
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