How effective are equities at hedging inflation?

EQUITIES

Pat Ryan, portfolio manager, Lazard Asset Management, examines inflation-proofing in different economic scenarios.

The world economy has enjoyed stable inflation over the last 20-30 years, but this has not been the norm in the past. Historically, more severe periods of inflation or deflation have been much more common than the stable, ‘Goldilocks’ scenario experienced in recent decades. Current high levels of sovereign debt, expansive monetary policies, and rising commodity prices as a result of emerging market demand suggest stable inflation could come to an end. A direct result of an increase in inflation would be for real returns on securities to suffer, particularly in fixed income. Many inves...