Baring Asset Management has urged investors to re-evaluate portfolios to protect against the dangers of rising inflation.
Late cycle inflation has been identified by Barings as the next phase of the economic cycle and the investment house recommends investors diversify into inflation-protected bonds, emerging market commodity producers, gold, alternatives and currencies.
While Barings says inflation-protected government bonds may not offer the most substantial return, they do offer protection against inflation.
Barings also believes companies in the Middle East, Russia and Latin America offer protection against the risks of inflation, while a “modest allocation” to hedge funds or funds of hedge funds could be an effective method of risk diversification.
Percival Stanion, Barings multi-asset group head, says the low inflation phase of the economic cycle is a thing of a past.
“Strong growth in the world’s emerging economies and the subsequent demand for commodities has pushed the price of agricultural and energy commodities higher,” he says.
“Although the pace of economic growth is likely to ease this year as a result of the disjunction we have seen in the credit markets, demand from developing countries is likely to keep commodity prices high and the cost of living is set to continue rising.
“The mid-part of the economic cycle might have lasted longer than expected, but we’re back in classic territory for economists: late cycle inflation.”IFAonline
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