For individual investors in the UK

Global Perspectives Podcast – Come on down: is inflation priced right?

Join Adam Hetts as he speaks to Jim Cielinski, Global Head of Fixed Income, about the direction of inflation and some of the potential pitfalls in traditional “inflation protection” tools.

Key Takeaways

  • Base effects are distorting inflation figures; a permanent rise in inflation likely requires a closing of the output gap and momentum in wage inflation.
  • Treasury Inflation Protected Securities and floating rate securities may solve one type of risk but can open up investors to other underappreciated risks; what’s more investors are not absolved of the need to avoid overpaying.
  • The world may be less synchronised exiting the pandemic, creating potential opportunities for active investors in emerging markets and across the credit spectrum.

Glossary

ABS: Asset backed securities are financial securities that are ‘backed’ by assets, such as loans, credit card debts or leases. They offer investors an opportunity to invest in income-generating assets.

CLO: Collateralised loan obligations are a single security backed by a pool of underlying debt, typically loans issued to corporations.

Cyclicals: companies that operate in areas that are highly sensitive to changes in the economy.

Deflation: a decrease in the price of goods or services in the economy.

Floating rates: variable interest rate on a security that moves up or down in relation to a specific benchmark rate. Securities with floating rates may be named as such, for example, floating rate bonds.

Idiosyncratic reasons: these are reasons that are very particular i.e. outside the norm.

Investment grade: A bond typically issued by governments or companies perceived to have a relatively low risk of defaulting (not meeting) their payments. The higher quality of these bonds is reflected in their higher credit ratings when compared with bonds thought to have a higher risk of default, such as high yield bonds.

Leverage: level of debt in a company, deleveraging is when a company is reducing its debt levels.

Reopening premium: bounce back in prices after economy reopens.

Run rate: current pace of change that is used to make projections about the future.

TIPS: Treasury inflation protected securities are government bonds where the principal value adjusts with inflation.

Adam Hetts, CFA

Adam Hetts, CFA

Global Head of Portfolio Construction and Strategy


Jim Cielinski, CFA

Jim Cielinski, CFA

Global Head of Fixed Income


14 Jul 2021

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

Marketing Communication.

 

Glossary

 

 

 

Adam Hetts, CFA

Adam Hetts, CFA

Global Head of Portfolio Construction and Strategy


Jim Cielinski, CFA

Jim Cielinski, CFA

Global Head of Fixed Income


14 Jul 2021