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.”
