Inflation-Sensitive Assets
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Inflation-Sensitive Assets
Stefania Perrucci
Inflation-Sensitive Assets
Foreword
Inflation-Sensitive Assets
Investable Commodity Indexes and Inflation: A Brief History
Commodities, Inflation and Growth: Implications for Policy and Investments
Inflation and Real Estate Investments
Infrastructure Assets and Inflation
Equity Investments and Inflation
Inflation-Linked Markets
Understanding and Trading Inflation Swaps and Options
The Role of Models in Modern Monetary Policy
Term Structure of Interest Rates and Expected Inflation
Monetary Policy, Inflation and Commodity Prices
Inflation and Asset Prices
Inflation and Equity Returns
Inflation Hedging through Asset and Sector Rotation
Practical Models for Inflation Forecasting
Protecting Insurance Portfolios from Inflation
Inflation, Pensions and Liability-Driven Investment Solutions
Ultra-High-Net-Worth Investors and the Real Asset Value Chain
Inflation Markets: A Portfolio Manager’s Perspective
Inflation Indexation and Products in Emerging Markets
In this chapter, we discuss how inflation should be analysed and managed as a key portfolio risk. We also discuss the birth of a new asset class, composed of inflation sensitive assets, that has now gained explicit stand-alone classification and allocation by several large institutional investors, including pension funds and insurance companies.
The first section introduces the concept of inflation risk. We then analyse some macro issues affecting inflation and asset prices. This provides a natural introduction to why inflation-sensitive assets, and not just inflation-linked products, should be viewed as a separate asset class and should receive consideration in any diversified investment strategy.
INFLATION RISK AND EVALUATING INVESTMENTS IN REAL SPACE
Although most commonly used investment metrics measure nominal risk and returns, a more rational approach calls for evaluating investments on a real, ie, inflation-adjusted, basis, as investors should be concerned about preserving or, even better, increasing their purchasing power.
This is not an academic distinction, but a very consequential one. In fact, historic episodes, for example, stagflation in the 1970s and the
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