Institutional investors increasingly hedging against inflation

Almost nine in ten (88 per cent) institutional investors have increased their allocation to assets and investment products that aim to provide a hedge against inflation in the past six months, research from Tabula Investment Management has revealed.

As reported by our sister publication, European Pensions, the study discovered that 90 per cent of European institutional investors and wealth managers surveyed were concerned about inflation.

Almost 85 per cent of respondents said they expected the funds they manage to increase allocations to asset classes and funds that help combat the threat of inflation, and 20 per cent stated the increase in allocation will be “dramatic”.

The research also found that gold was the asset most likely to see increased allocation, with 72 per cent of respondents mentioning it, comprising 45 per cent saying it would see a slight increase and 27 per cent saying it would see a dramatic increase.

Other assets classes that were identified were inflation-linked fixed income ETPs (identified by 71 per cent), broad commodity basket (67 per cent) and inflation-linked fixed income bonds (66 per cent).

Tabula Investment Management CEO, Michael John Lytle, commented: “Inflation is one of the biggest threats facing investors. It is not surprising to see so many professional investors taking positive steps to tackle the challenge.”

Lytle added that, although current inflation is high, long-term inflation expectations are still range bound and that, if investors conclude that inflation is here to stay, then the landscape could change dramatically.

“There is deep concern that we are entering a new era of persistently higher inflation”, he continued, “trade freedom is in decline, while ‘greenflation’ and the Ukraine conflict are driving energy prices and food input costs higher.

“Central banks are rising to the challenge, but the question is whether monetary policy can tame inflation caused by stark supply-demand imbalances.”

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