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How five wealth managers are fighting inflation

From gold to bonds, our readers discuss their strategies to shield their investments from inflation.

Five-and-a-half year high 

Data from the Office of National Statistics earlier this month showed that UK inflation remained at a five-and-a-half year high of 3% in October. 

The fall in the value of sterling following Brexit has played a major role in the rise in inflation. 

This leaves wealth managers with some with some tough asset allocation decisions going forward. We asked asked five how they were responding.

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Five-and-a-half year high 

Data from the Office of National Statistics earlier this month showed that UK inflation remained at a five-and-a-half year high of 3% in October. 

The fall in the value of sterling following Brexit has played a major role in the rise in inflation. 

This leaves wealth managers with some with some tough asset allocation decisions going forward. We asked asked five how they were responding.

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StJohn Gardner

Managing director, investment management, Arbuthnot Latham, London

'When considering the potential impacts of inflation on a portfolio, it’s important to first understand the nature of the drivers causing the inflation in order to determine the likely impacts on various assets. Current inflation is not wage based and is not combined with a recession. It can be described as ‘demand pull’ - a function of the effects of healthy, synchronised global growth.

'This is generally positive for equities, where we are overweight, particularly defensive companies which have the power to pass on price rises. Physical assets also tend to hold their value with inflation, and we are increasing our exposure to property, and considering basic materials and commodities. Infrastructure also tends to weather well given the predominance of RPI linked government backed contracts.

'Whilst inflation would ordinarily be tackled by increases in interest rates, we feel these will lag and inflation will be allowed to persist at the top end of central bank ranges, in order to inflate away high debt levels. However, whilst fixed income will face headwinds in achieving real returns, we still feel some long exposure remains appropriate in a diversified portfolio.'

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Milena Ivanova

Chief Executive, Monogram Invest, London

‘Financial market history teaches us that we are woefully inadequate at predicting economic cycles and that the link between economic variables and asset returns is time-varying and equally unpredictable.

‘The fear of inflation may be based on the formative “double-digit” experiences of senior policymakers some 20-30 years ago: are they still relevant? We simply do not know, what with robots, blockchain, AI and all sorts of cost-reducing globalised innovations. Inflation may well be living a structurally subdued existence – or even be extinct.

‘So, the focus for investors should be to recognise this world of uncertainty and position themselves in a way that protects them against unforeseen problems. Multi-asset diversification is only a small part of the solution.’

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Simon Black

Partner, Hassium Asset Management, Gerrards Cross

‘At Hassium, we focus on working in partnership with our clients to achieve their investment goals, educating them on the difference between real and nominal returns as well as between an absolute or relative return focus.

‘We view global equities as the best hedge against inflation. Gold is often quoted as an inflation hedge but a reallocation to risky assets combined with a negative impact in a rate hiking environment could result in it not performing as expected.

‘While inflation-linked bonds are touted as another alternative, we believe they look expensive and are only worth holding if we believe the market is underestimating inflation.’

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Peter Jackson

Investment manager, Tilly Bailey & Irvine, Hartlepool

‘The bond element of our portfolios contain a reasonable proportion of floating rate investment trusts and index-linked Oeics. In addition, individual bonds are high coupon, short-dated securities, with maturities averaging three years or with a call/reset option. Other bond holdings are high yield, more sensitive to economic activity than inflation and interest rates.

‘We also hold infrastructure funds, where a high proportion of the underlying holdings have index-linked income. The greatest protection against inflation, however, is to be found in shares paying decent but well covered dividends, which have the ability to keep pace with moderate inflation, unless it becomes hyper-inflation, in which case we are all doomed!’

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Stacey Ash

Director and investment manager, iFunds, Coventry

‘The increase in inflation has coincided with our investment process taking fixed interest exposure down to zero across our multi-asset absolute return portfolios and funds. Whether this is as a direct consequence of a rise in inflation, future inflation expectations or the anticipated rate hike is not something we concern ourselves with. Instead we use an objective and computerised process which analyses what the market is doing in price terms and then adjusts our asset allocation accordingly.

‘In addition to a zero weighting to bonds, our process has also favoured non-sterling denominated assets such as European, US, Asia and emerging market equities which has sheltered us from the weaker pound and the inflationary pressures it has caused.

‘Finally, if inflation continues to increase then our process has access to a range of different assets such as gold and other commodities as well as property and inflation linked securities.’

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