Touching Base
15 July 2021
To all Financial Friends
My last commentary and update was a month ago. Whilst all sorts of things have changed in the undergrowth of the financial world, on the surface not much has changed. However, the upcoming 'turning point' as I have called it, will prove key to the need to adjust portfolios (ahead of the event), against a possible market correction (downwards for equities). When the time comes, giving consideration to reducing equity holdings in favour of inflation linked gilts and global bond funds could be wise. When that time comes gold could well shine and infrastructure funds could prove their value as a perceived defensive equity holding.
In the last three months inflation linked gilts (up 4.95%). Global inflation linked bonds (up 3.5%) and non-inflation linked gilts up by 1.51% show inflation linked pulling ahead. Tom Wells manager of the Sanlam Global Inflation Linked Bond Fund comments that 'going global' can give a cutting edge to performance in this category. A manager free to choose the economies likely to give the best return for this asset, is better than being trapped in just one economy. Wells said that as inflation will keep rising 'index linked bonds' will be an attractive asset class. Well (smile) he would say that wouldn't he? But then I happen to agree with him. One of the jobs of a fund manager is to attract investors money into his or her fund!
So this round robin mail aims at keeping us all awake (though not at night!) and on the ball. The paragraph below is from last month’s email as a reminder.
The Conundrum for the Financial Authorities
We need to stimulate the economy out of the Covid virus financial crisis to preserve jobs and our future standard of living. To do this interest rates need to be held low to give us all more money to spend and keep things going. However inflation is like a roaring lion which once let out of it’s cage is hard to control. Back in the 1980's my clients were able to invest for a 5-year term at a guaranteed interest rate of 13%!! Interest rates were that high! The standard way to control inflation is to increase interest rates. Do you see the catch 22 situation we are in?
PLEASE NOTE: A financial or economic commentary like these, are written to explain, interpret or give an opinion on economic events and markets to help readers understand what’s happening and why it matters. Designed to help you make informed decisions of your own by making you aware of opportunities, risks and potential rewards in the market.
