Three strategies for building inflation-resilient portfolios

Three strategies for building inflation-resilient portfolios

Jon Cheigh

Chief Investment Officer

More by this author

1 minute read

April 2021

Share

Sign up to get our insights
Subscribe

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
Author Profile Picture

Jon Cheigh, Executive Vice President, Chief Investment Officer, leads the investment department.

Author Profile Picture

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

Author Profile Picture

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.

Author Profile Picture

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

Author Profile Picture

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

FURTHER READING

Capital Market Assumptions

Capital Market Assumptions: Expectations for the next 10 years amid a generational change for markets

June 2024 | 22 mins

We expect higher fixed income and real asset returns alongside lower U.S. equity returns for the next decade.

3 Reasons to own real assets

3 Reasons to own real assets

March 2024 | 4 mins

A diversified blend of real assets can potentially play a vital role in the new regime of higher inflation, higher rates and increased market volatility.

Secular drivers of inflation

Secular drivers of inflation

January 2024 | 4 mins

Recent data indicates a slowing inflation trend, yet risks persist. Secular forces suggest that a prolonged elevated inflation period is underway with the potential for periodic price spikes. Factors driving long-term inflation include commodity underinvestment, tight labor markets, geopolitics, deglobalization and fiscal uncertainty. We see parallels to past inflationary eras, which highlight the difficulty of controlling inflation. While not predicting a return to 9%, the expectation is for a decade of higher-than-accustomed inflation, underscoring the importance of having a real assets allocation.