The Best Strategies for Inflationary Times

32 Pages Posted: 29 Mar 2021 Last revised: 28 Apr 2021

See all articles by Henry Neville

Henry Neville

Man Group

Teun Draaisma

Man Group

Ben Funnell

Man Group

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Otto Van Hemert

Man AHL

Date Written: April 28, 2021

Abstract

Over the past three decades, a sustained surge in inflation has been absent in developed markets. As a result, investors are faced with the challenge of having little evidence regarding how to reposition their portfolios in the face of heighted inflation risk. We provide some guidance by analyzing both passive and active strategies across a variety of asset classes for the U.S., U.K., and Japan over the past 95 years. Unexpected inflation is bad news for traditional assets, such as bonds and equities, with local inflation having the greatest effect. Commodities and futures trend performance is strong during inflationary periods, with US regimes particularly relevant, and the most pronounced effect when the US, UK and Japan experience inflation simultaneously. Among the dynamic strategies, we find that trend-following provides the most reliable protection during inflation shocks. We also provide analysis of alternative asset classes such as fine art and discuss the economic rationale for including cryptocurrencies as part of a strategy to protect against inflation.

Keywords: Inflation hedge, inflation surprises, inflation shocks, portfolio management, asset allocation, risk management, commodities, gold, factor investing, bitcoin, cryptocurrency

JEL Classification: G11, G13, G15, G01, E31, E44

Suggested Citation

Neville, Henry and Draaisma, Teun and Funnell, Ben and Harvey, Campbell R. and van Hemert, Otto, The Best Strategies for Inflationary Times (April 28, 2021). Available at SSRN: https://ssrn.com/abstract=3813202 or http://dx.doi.org/10.2139/ssrn.3813202

Henry Neville

Man Group ( email )

Sugar Quay
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London, EC3R 6DU
United Kingdom

Teun Draaisma

Man Group ( email )

Sugar Quay
Lower Thames Street
London, EC3R 6DU
United Kingdom

Ben Funnell

Man Group ( email )

Sugar Quay
Lower Thames Street
London, EC3R 6DU
United Kingdom

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Otto Van Hemert

Man AHL ( email )

Riverbank House
2 Swan Lane
London, EC4R 3AD
United Kingdom

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