Inflation and asset class returns
What does this mean for investing in a rising inflationary environment?
Over the last few weeks, we’ve seen central bankers, executives and public figures increasingly suggest that inflation will be less transitory than they had initially suspected. Who could ever have guessed?
When you have a global pandemic that shuts down global supply chains and kills supply, but you simultaneously stimulate demand, doesn’t it seem bleedingly obvious that inflation will result? However, I don’t want this piece to be about the mechanics of inflation (does anyone really know); instead, I want to look at history and see which asset classes have performed well and poorly during periods of rising inflation.
Inflation and asset class performance
To get an idea of how to position portfolios for a future with potentially higher inflation levels, the natural place to start looking is in the past — to study how different asset classes performed in different inflationary environments.
I compiled return data for two different debt grades, three equities styles, and two ‘real’ assets …