The COVID-19 pandemic and the responses to it by governments, central banks and consumers have unleashed both (clearly) disinflationary and (potentially) inflationary forces. We do not know whether inflationary or disinflationary forces will win over the longer term. But despite credible central banks and well-anchored near-term expectations, many investors feel that medium-term inflation uncertainty has risen. How should they respond?
In this article we explore the historical inflation sensitivities of a range of different investments and present the benefits of both risk-balanced asset allocations and dynamic directional strategies to prepare for uncertain times.
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We thank Alfie Brixton, Jordan Brooks, Thomas Maloney and Ashwin Thapar for their work on this paper. We also thank Pete Hecht, Antti Ilmanen, Michael Katz, Christopher Palazzolo and Scott Richardson for their helpful comments.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.