Inflation Q&A Part II: What Is the Best Inflation-Hedging Strategy for a Multi-Asset ALM Portfolio?

ABOUT US : Collapsed
INVESTMENT STRATEGIES : Collapsed
FINANCING SOLUTIONS : Collapsed
INSIGHTS : Collapsed

Inflation Q&A Part II: What Is the Best Inflation-Hedging Strategy for a Multi-Asset ALM Portfolio?

DOWNLOAD PDF
Jun Jiang Jason Chen Stephen Radis
FEB 21, 2022

We Recommend

Inflation Q&A Part I: Is Hyperinflation Coming?

Global Risks 2022

 

 

 

Key Takeaways

  • The impact of inflation on assets and liabilities may be different. Therefore, the net exposure of these portfolios may not be a simple sum of two exposures.
  • Using Treasury Inflation-Protected Securities (TIPS) alone may not be the best solution to hedge the inflation risk of a multi-asset portfolio.
  • Besides TIPS, inflation-sensitive assets (e.g., commodities, real estate, and equity) and inflation derivatives (e.g., inflation swaps and total-return swaps) are the two methods that can be used to mitigate and manage inflation risk. Each instrument has its own unique pros and cons.
  • The best strategy is to follow a disciplined framework and develop a customized hedging solution.

After years of a market focus on the risk of disinflation or deflation, inflation has reemerged as a hot topic. There are many inflation-related questions in investors’ minds. Here are answers to a few of the most commonly-asked questions.