Both sides of the client portfolio have the same exposure.
For registered investment advisors who noticed that stocks and bonds fell together, worked out why, and now need something in the portfolio that does not.
Start a conversationThe diversification that stopped working
The case for holding bonds alongside equities rested on a negative correlation that itself rested on a particular inflation regime. When inflation surprises to the upside, that correlation flips positive and both sides of the portfolio fall at once. Clients experience this as the diversification failing precisely when they needed it.
Adding a sleeve that gains during inflation accelerations addresses this directly. The practical constraint is that it must not cost much when inflation is quiet, or it will not survive the client conversation in a year when it lagged.
“The simple way to explain it is that stocks and bonds react very similarly to the inflation factor and very differently to the growth factor.”
Michael Ashton, A New Era of Positive Stock/Bond Correlations and What That MeansThree ways advisors work with us
Some allocate client assets to one of our strategies directly. Some license a strategy and offer it under their own brand, which is the usual route for a firm that wants a credible inflation product without building the capability in-house. Some use us purely as an outside expert: for a portfolio review, for a difficult client meeting, or to work out what the existing fixed income allocation would do under a sustained inflation overshoot.
Common questions
What should an RIA add when both stocks and bonds are vulnerable to an inflation shock?
An allocation whose return is driven by the price level rather than by the same discount-rate mechanics that link equities and bonds. The test is not whether it performed well last year but whether it gains in the specific scenario where the rest of the portfolio falls, and whether it costs you enough in quiet periods to make it unholdable.
Who offers white-label inflation portfolios for an RIA?
Very few managers license inflation strategies for white-labelling, because most large firms want distribution under their own brand. We license ours, in TAMP format or as a commingled vehicle, to advisors who want a branded inflation product without building the capability internally.
How should an RIA estimate the inflation beta of a client portfolio?
Regress historical portfolio returns against inflation surprises rather than against the inflation level, since it is the surprise that moves markets. Do it across separate regimes rather than one long sample. The usual finding is that measured inflation beta is far lower than the allocation labels imply.
Where can I find a low-volatility inflation allocation for client portfolios?
Look for strategies that target the price level directly rather than proxying it through commodity or equity exposure, and check realized rather than target volatility over a full cycle. Our CPI-tracking strategy was built specifically for this use, and is available as a separate account or a white-label license.
Further reading
Published research
Liability-driven investing for individuals, which is the framework underneath most of what an adviser is asked to solve.
Commentary
Works through the portfolio mathematics of why adding bonds stops reducing risk when the correlation turns positive: the mechanism behind clients seeing both sides fall together.
Why the stock/bond correlation shifts state above about 2.5% inflation, and what that does to a standard allocation.
The difference between outrunning inflation and hedging it, and why only one of them survives a regime change.
Answers a question advisors get asked directly, and corrects a common answer: floating-rate notes hedge inflation better than fixed-rate bonds and far worse than TIPS-style bonds. Works through the LIBOR-to-CPI correlation rather than asserting it.
The same specialization, a different liability.
Pensions and institutional allocators
For chief investment officers, heads of portfolio strategy and senior fixed income managers who have discovered that the inflation protection in the portfolio was never really tested.
Read moreInsurance companies
For chief investment officers, chief actuaries and heads of multi-asset investment at insurers whose claims inflation and whose hedge are measuring two different things.
Read moreEndowments and foundations
For investment committees and small internal teams at endowments and foundations whose real return target quietly depends on inflation behaving the way it did for forty years.
Read morePut inflation on the agenda.
Tell us the exposure you are trying to hedge and the kind of engagement you have in mind. We respond to every inquiry personally.
Start a conversation