You win. In either an inflationary or deflationary scenario.
Copy of LinkedIN post, 2021
You win. In either an inflationary or deflationary scenario.
In asset allocation models and fixed income strategies; Nominal based bonds, Linker’s, Tips, and Sukuk are all being asked to deliver a positive Real return. Yes, one may choose to employ a hedging technique, but this is not available to all participants. The costs, complexities and less than absolute correlations are not available/acceptable to all.
Sovereigns, political subdivisions, corporate structures, and individuals want a cost-effective fixed Real structure where a credit scoring positive for the borrower and the lender is delivered.
Today’s opinions have a standard deviation of +/- 3. Bridgewater to Schwab, Dalio to Jones. Bonds are…Not currently a prudent investment. To other tail of distribution… buy bonds selectively to keep your asset allocations in what is acceptable fiduciary prudence.
With a constant purchasing power based structure, YOU WIN wherever the Nominal rates move.
Will you sleep better if you invest or fund in a structure that starts in a constant purchasing power? Yes
Will you meet or exceed fiduciary responsibility? Yes
Is it a paradigm shift? Not for us to declare, but our research says yes.