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All rise
In 2010 , Warren Buffett wrote an open letter to the US government : a thank you note for such decisive action in the years following the global financial crisis , while warning over policies that “ unless changed will eventually lead to lots of inflation down the road ”. As smart a man as Buffett is , he was wrong on that occasion , and it took the worst global pandemic for more than 100 years to see a sustained rise in prices across the board . There are some basic assumptions as to which asset classes perform better or worse during this type of environment : gold is a popular hedge ; real assets and commodities tend to be directly linked to inflation ; and in simplest terms , equities fare better than bonds , or cash , where purchasing power is directly eroded over time . Today , inflation is teetering around
7 % in the US , a 40-year high . The Bank of England has indicated that figure may go even higher in the UK when it publishes CPI figures in April , likely rising to 7.25 %. So how have the professionals been tilting their assets ?
Into reverse Alan Dobbie , manager of the
Rathbone Income fund , has been anticipating a period of rising inflation since early 2020 , reversing his portfolio ’ s longstanding defensive bias in favour of cyclicals . The move paid off , with the latter outperforming defensives through the first year of the pandemic by 40 %. While parallels can be drawn with the years following the tech bubble , there was certainly no pandemic to face . “ In the early 2000s , we had decent GDP growth , decent corporate profitability and growth wasn ’ t scarce ,” Dobbie says . Value stocks , typically those in the banking and commodity sectors , once again rose to the top , yet the dividend policies look quite different this time round .
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