Three strategies for building inflation-resilient portfolios

Three strategies for building inflation-resilient portfolios

Jon Cheigh

Chief Investment Officer and Head of Global Real Estate

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1 minute read

April 2021

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Extraordinary policy measures may be tilting inflation risks to the upside, reinforcing the need for diversifying assets that tend to respond well to unexpected inflation.

  • Global real estate securities: Rent growth has historically outpaced inflation, while property values may benefit as higher costs for land, labor and materials raise the economic threshold for new supply.
  • Global listed infrastructure: Many infrastructure assets have pricing mechanisms that include rate escalators linking user fees to inflation, while a stronger economy has typically driven higher throughput and cash flows.
  • Real assets multi-strategy: A diversified real assets allocation has historically delivered equity-like returns with reduced volatility and strong relative performance in inflationary periods.

Long-term inflation pressures are building

Recent market attention has been acutely focused on the spike in U.S. headline inflation, which has accelerated from near zero to 2.6% over the past year. This short-term increase has been well telegraphed considering that conditions today are the mirror opposite from a year ago, with global growth in 2021 on course to hit a 50-year high. The recovery in oil prices, supply chain disruptions and a reopening economy suggest inflation could peak above 3% in the next few months before settling back to just above 2% for the remainder of the year.

Further out, however, we believe the market’s flat inflation expectations over the long run underestimate the potential impact of $30 trillion in global fiscal and monetary stimulus and more inflation-tolerant central bank policies.

ABOUT THE AUTHORS
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Jon Cheigh, Executive Vice President, Chief Investment Officer and Head of Real Estate, leads the investment department and oversees the real estate team.

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Vince Childers, CFA, Senior Vice President, is Head of Real Assets Multi-Strategy and a portfolio manager for Cohen & Steers’ real assets strategy.

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Benjamin Morton, Executive Vice President, is Head of Global Infrastructure and a senior portfolio manager for Cohen & Steers’ infrastructure portfolios, including those focused on master limited partnerships.

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Ben Ross, Senior Vice President, is Head of Commodities and a portfolio manager for Cohen & Steers’ commodities strategy.

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Jason A. Yablon, Executive Vice President, is Head of U.S. Real Estate and a senior portfolio manager for U.S. real estate securities portfolios and oversees the research process for U.S. real estate securities.

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