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Real Assets: Managing Through Inflation Uncertainty
Planning for a scenario with an inflation surprise has come back on the table in response to the COVID-19 related historic stimulus. Keeping this in mind, it may be prudent for investors to include an allocation to real assets to increase the diversification of their portfolio so as to mitigate unexpected inflation’s potentially adverse outcomes for growth and asset values.
Investors are faced with a quandary in the COVID-19 global economy as they navigate the concurrent threats of deflation and inflation. The economic backdrop allows for arguments supporting each outcome. The deflationary scenario results from debt-financed stimulus and persistently curtailed economic activity as the world tentatively recovers from lockdown measures, yielding some of the worse economic data on record. Not to mention that inflation expectations have stubbornly sat well below the central bank targets since the 2008 financial crisis.
However, inflation cannot be ruled out given the swift rise in M2 money supply, the globally coordinated policy response and challenges to existing supply chains. Central bank balance sheets have ballooned to record levels and policy makers have already tipped their hands toward delivering additional monetary support if necessary. This, plus the more than US$10 trillion worth of negative yielding debt across the world and Federal Funds futures still pricing in the possibility of slightly negative US rates in mid-2021, has created a recipe for inflation.
This information is for informational purposes only, not to be construed as investment advice or a recommendation or offer to buy or sell any security. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. There are no guarantees regarding the achievement of investment objectives, target returns, portfolio construction, allocations or measurements such as alpha, tracking error, stock weightings and other information ratios. The views and strategies described may not be suitable for all investors. SSGA does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Investing entails risks and there can be no assurance that SSGA will achieve profits or avoid incurring losses.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.
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