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Impact of continued high-inflation on multi-asset portfolios

Journalist: Ima Jackson-Obot, FTAdviser

ended 20. June 2023

Hello advisers,

How much of a worry is the impact of the continuing sticky high inflation on multi-asset portfolios and why/why not?

Is it not a worry, perhaps because for example, it has all been priced into the portfolios; or conversely, is it a worry, as markets are just too volatile to price, or are you indifferent?

Thanks

Ima

2 responses from the Newspage community

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Editor
Wes WilkesVerified
CEO at IronMarket Wealth
The continued threat of 'sticky inflation' remains a concern as it holds the triple threat of damaging consumer confidence, threatening bond valuations and increasing the likelihood of further rate hikes.
We have seen much of the damage for multi-asset in 2022 and the positive side to the rate hikes caused by high inflation has created an actual, if not real, return in the bond side of portfolios. However, as wage growth remains high, the 2% inflation target seems more difficult to achieve and thus leaves further rate hikes on the table and the likelihood of recession higher with rate cuts later down the line. The latter two points markets may not yet have fully priced in.
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Peter Lowman0
Chief Investment Officer at Investment Quorum
Once inflation is embedded in the economy, it is difficult to control without measures that harm consumers and traditional asset classes. While the UK continues to struggle with inflation, investors can invest in assets that perform well in times of elevated inflation, such as index-linked bonds, commodities, gold, REITs, and quality companies. The US has seen falling inflation, and the Federal Reserve has paused its monetary policy tightening program, prompting investors to reapply cash, which will be positive for multi-asset portfolios and client returns. As inflation becomes less of an issue, investor interest in the markets will widen, resulting in lower volatility and bullish equities and bonds.