Prepare your portfolio against inflation with real assets, writes PIMCO



According to the Consumer Price Index (CPI) statistics, inflation in the United States has jumped from near zero in 2015 to 2.5% in 2018, mainly because of strong consumer spending, employment figures, tax reform and trade tensions.

In its latest “viewpoints”, Newport Beach-headquartered fixed-income giant Pacific Investment Management Company (PIMCO) reminds investors that “inflation surprises are not rare” and that “real assets” like commodities, US Treasury Inflation-Protected Securities (TIPS), sovereign Inflation-Linked Bonds (ILBs) and Real Estate Investment Trusts (REITs) offer a resilience-building solution since “correlation between stock and bond markets tend to rise when inflation is elevated”.

Considering that “inflation will be higher than in the recent past” – in the 2.0%-2.5% range in 2019, mitigating the risk requires investors to reconsider the traditional 60/40 stock/bond portfolio which would likely lose 1.1% if inflation surprises by 1%, writes PIMCO.

In order to meet the challenge, you may invest in inflation-hedging solutions (see below) for late-cycle investing “while also enhancing diversification and boosting return potential.”