Investors need to reassess which assets are in their portfolios to protect their wealth against soaring inflation and rising interest rates, says deVere Group.
Nigel Green, CEO of deVere Group, says: “Long term and short duration assets respond differently to rising inflation and interest rates. Short duration assets include value stocks, such as agriculture, financials, mining and energy sectors. These are the stocks that offer ‘jam today’ for investors, which are popular during periods of volatility as we’re experiencing now.
“Long duration assets, such as long-dated bonds and tech stocks, are particularly vulnerable to rising inflation and interest rate hikes from major western central banks.
“As such, in this volatile environment, investors might need to adjust their portfolios accordingly in order to mitigate risks to their investments and, therefore, their long-term wealth.”
Green believes that investors seeking both capital appreciation and capital preservation in this current landscape should also consider diversifying into less traditional asset classes, including venture capital, structured products, high dividend stocks, hedge funds and managed futures and real estate.
Greens says: “Rising interest rates, amid weakening business and household demand is bad news for both bond and stock markets. Meanwhile, inflation will eat into company profit margins for many companies, particularly those selling discretionary products that businesses and consumers can delay purchasing.
“It’s impossible to know how much of the inflation and interest rate story is already baked in to stock and bond market prices but investors are anticipating further market volatility.”
According to the VIX ‘fear gauge’ index of implied future volatility on the S&P rose to a record high of 31. However, investors appear to have more confidence in the US Federal Reserve’s ability to bring down inflation in the medium term.
Green adds: “It’s true that equities have tended to outperform bonds and other assets over the long term. But a broadly diversified portfolio of equities, bonds, commodities and alternatives has performed better on a risk-adjusted basis meaning after taking into account volatility.
“As ever, bouts of market volatility are the times when most opportunities are presented for investors looking to build long-term wealth. That said, investors should consider if they need to revise their portfolios in the current environment.”
