Back

Preparing Portfolios for Inflation

August 15, 2012

Although disinflation has seemed the more likely scenario in recent years, PIMCO expects inflation to accelerate from recent levels over the next three to five years, but double-digit rates are unlikely.
-Ronit Walny, vice president, PIMCO
-Kevin Winters, senior vice president, PIMCO

  • Although disinflation has seemed the more likely scenario in recent years, PIMCO expects inflation to accelerate from recent levels over the next three to five years, but double-digit rates are unlikely.
  • An understanding of the constituents of the Consumer Price Index can help us design portfolios that seek to better defend against inflation. The core building blocks of such portfolios are commodities, Real Estate Investment Trusts and Treasury Inflation-Protected Securities.
"By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens."
John Maynard Keynes
Inflation is a fearsome and stealthy force. It can pick our pockets and pilfer our wealth. Yet investors aren't helpless. By understanding the sources and risks of inflation, we can design portfolios that seek to better guard against it. 

In recent years, disinflation has seemed the more likely scenario. Yet we see inflationary risks looming over the secular horizon. 

 

...Read the Full Report