Global Insight Monthly - April 2018

Apr 06, 2018 | Sam McLaughlin


Inflation is on the horizon. How will this affect portfolios and what should be done now to prepare?

In the Global Insight Monthly (here), the focus is on inflation. Three separate focus articles this week concentrate on playing out what rising inflation will look like in portfolios. While we feel that the risk of a spike in inflation is unlikely, we agree with the RBC Investment Strategy team that the coordinated strength in global markets means that the inflation writing is now on the wall and that now is the time to start the process of subtly shifting portfolios to position them for the future. “Waiting is not a strategy,” as Sam Renikoff put it in his piece on bonds and inflation. Put another way, the best time to prepare for an eventuality is before it happens, not after. Macro shifts that investors of all stripes should be considering include:

  • Reviewing both stock- and bond- holdings outside of North America
  • Assessing the impact of rising rates on current equity positions, especially in portfolios geared for income over growth (e.g., “dividend” portfolios)
  • Finding companies where earnings are growing and whose businesses are expanding (“growth” companies such as tech), or those that have rate-dependant businesses such as banks and insurance companies
  • Sharpening thinking around bond portfolios to ensure that their incomes won’t be cancelled by rising costs and falling prices, and considering inflation-protected investments like floating rate bonds
  • As always, ensuring that your portfolios match your long-term goals, short-term income requirements, and risk tolerances