Inflation has been a big topic in close to all markets across the globe over the last twelve months. This has been doubly highlighted when matched with the cost-of-living crisis in countries such as the UK. But when it comes to investments and markets, can inflation have winners and losers? Patrick Brusnahan speaks to bfinance on the matter

  • PBI: How is today’s inflation situation different to those of the past?

Ahmed Mohamoud, Associate, Public Markets at bfinance: We find that each inflationary phase has its own distinctive drivers, from the technology boom of the late 90s, to the China driven demand boom in 08-07 and this latest period as the Russian war on Ukraine and OPEC production cuts fuelled the Global Energy Crisis. The current inflationary spike is also much greater in magnitude than at any time since the 1970s.

The inflation drivers have materially differed in each period, meaning that we do see differences in which sectors and sub-sectors outperform. That being said, there are some consistencies: Energy, for instance, has proved consistent outperformer whilst Communication Services are a perennial laggard.

  • How do equity managers deal with this current market? And how do they ease client concerns over said market? Can there be winners or losers with inflation?

AM: Equity manager performance has diverged during this latest inflationary period. Value managers have outperformed their Growth counterparts, while Income seeking and defensive minded managers fared relatively better, due in part to sector biases.

That being said, investors should be mindful of maintaining diversification across styles and sectors as we navigate an evolving market environment.

Not all strategies are designed to deliver ‘all-weather’ performance, and the return profile of managers can deviate depending on market conditions. It is important for managers to communicate this clearly to ease client concerns over short-term performance.

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By GlobalData