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Inflation to stagflation: navigating intensifying risk in multi-asset

Inflation to stagflation: navigating intensifying risk in multi-asset
Aurèle Storno - Chief Investment Officer, Multi Asset

Aurèle Storno

Chief Investment Officer, Multi Asset

Surging commodity prices, high inflation and hawkish central-bank actions – as these dynamics foment the risk of stagflation, how should multi-asset investors respond? In the latest quarterly edition of Simply put, we describe our approach to traversing this terrain. Key topics include:

  • Rearview vision and the road ahead. With our flagship All Roads strategy producing its 10-year track record, we have applied strategies refined in a decade of investment and research to respond to the prevailing risk – a stagflationary shock – in today’s markets. Re-evaluating our portfolios, we have stayed true to our principles of diversification and progressive adaptation.
  • Stagflation: risk scenario or certainty? Russia’s invasion of Ukraine is an economic game changer. As rising commodity markets amplify inflation, central banks are tightening policy or signalling hawkish turns, creating fears that the combination of high prices and escalating interest rates could subdue growth. How potent is the risk?
  • Limiting downside, participating in upside. To mitigate drawdowns, we have implemented a range of hedges against inflation and recession while diversifying into cash. Also wary of the risk of not being exposed to market rebounds, we are using relative-drawdown and trend-following strategies that served us well in the 2020 recovery.
  • Research-driven volatility insights. Recent investigations from our continuous research programme have focused on new sources of alternative data and corresponding risk models to show how range-based, intra-day and implied volatility measures can improve risk-based allocations.

To read the Q2 2022 issue of the quarterly edition of Simply put, please use the download button provided.

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