Commodity prices, inflation break-evens and nominal yield curves are rising. Central banks have calmed markets down so far, arguing that inflation trends are transitory. What if they are wrong?
As we argued in our latest Silver Bullet | Dog Money, investor positioning in both bonds and equities appears to be wrong-footed, after a decade of QE infinity and tightening yields. Today, policy has shifted towards fiscal dominance, and we think governments will continue to spend – this means holders of paper assets yielding less than inflation are likely to lose out. The last few days have seen a violent rotation out of growth equities into value. We believe this is likely to continue.
Our strategies are designed to give a set of alternatives to investors looking for yield and/or capital appreciation. In the liquid space, our Global Credit Opportunities (GCO) strategy has been positioning to benefit from reflationary trends by hedging duration, allocating defensively to credit and holding convertible debt in value sectors. Since May, the GCO fund has been awarded a five star rating by Morningstar, under the Global Flexible Bonds category.
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