#ideas2invest

24 March 2022

Asset Allocation: From reflation to stagflation?

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I want to hedge against
stagflation

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on stagflation

Story of the day

What a difference a month makes. In early-February, global investors were still fixated on how rising bond yields in a reflationary environment could derail risk assets. Then came the Ukraine-Russia crisis and the subsequent surge in energy prices soon pivoted the market narrative from “reflation” to “stagflation”. The current situation has triggered comparisons with the stagflation periods seen in the 1970s and early 1980s. But we believe that conditions prevalent today are different.

What does this mean for your portfolio?

While consumption may take a hit if energy/food prices stay elevated for prolonged periods, the latter is however not our base case assumption. Longer-term, we believe the shortfall in oil from Russia will be partly offset by higher supply from US shale producers and OPEC, including potentially Iran. The rise in energy prices should also not translate to a sharp rise in bond yields because of Fed pragmatism and structural factors.

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The fund primarily invests in gold mining stocks, with up to a third invested in other precious metals miners and Exchange Traded Commodity funds (ETCs) in gold and silver bullion. It is concentrated with roughly 30 holdings, focused on the companies ability to generate superior Return on Capital.

The fund is managed by PM George Cheveley, supported by two analysts, who actively adjusts the portfolio as per market environment.

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