Mellon Capital Management has developed a new ‘Advanced Beta Strategy’ specially made for more inflationary times, which in a reflection of the DWS stance outlined earlier, will purchase a diverse range of commodities to provide downside protection as the cost of living begins to creep up. The asset mix attempts to become more inflation-friendly via the use of Treasury Inflation-Protected bonds (TIPs) and real estate, Jacklin added.
Apart from the appearance of products like Mellon’s ‘Advanced Beta Strategy’, another sign of inflation’s return is when investors with no interest in macroeconomics begin to notice it’s influence in their portfolios. Cliff Asness, the Goldman Sachs propellorhead who turned his penchant for applying value and momentum signals into a lofty reputation with the shop he founded over 10 years ago, AQR Capital, finds his computer has a liking for ‘linkers’ (as TIPs are often called) at the moment. “I’m a quant so I only ever have a 53 per cent conviction about any particular asset class, but if I look at the entrails of our models it’s implicit that we think inflation will be higher,”
Asness told Investment & Technology while visiting Australia last month. “The way nominal bonds are priced at the moment, either the market has made a bad call on inflation, or they desperately want the safety and are prepared to wear the lower returns, or I am dead wrong – a possibility which can never be discounted!”