A monetary regime change or just a mild bout of inflation?

A potential game-changer

: A monetary regime change is a potential game-changer for investors, who may need a new toolkit for managing risk. In particular, it presents a challenge in terms of how to structure a robust, balanced portfolio that can both meet its return objective, and be able to withstand equity-market sell-offs.

What’s in the paper?

: In this paper we attempt to address the issue of inflation, what it may mean for financial markets, and why we believe the flexible, unconstrained approach of our Real Return strategy makes it well placed to navigate such an environment.

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Background

A backdrop of economies starting to reopen at a time when they are awash with stimulus has inevitably sparked concerns that inflation will rise. As economies open up, it is anticipated that inflation will look significantly higher than during 2020, when lockdowns stalled demand.

However, what remains less certain, and has become the primary debate among investors, is whether this spike will prove transitory or become more permanent, amounting in effect to a regime change.

A more inflationary environment over the medium term is likely to have profound implications in terms of how different asset classes behave and are correlated, and this will have repercussions for the way investment strategies are constructed.

Download the full paper

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