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Does Your Portfolio Align With Your Inflation Outlook?

Tired of the inflation and interest rate back and forth? You might be, and your clients might be, too, but your portfolio doesn’t have that luxury. While the Fed’s battle against inflation may be tiresome, portfolios don’t have the liberty to take a break from the back and forth. That’s why investors may want to revisit their portfolio amid a fluctuating, back-and-forth inflation outlook.

See more: Quality Is an All-Weather Investment Strategy

During the recent All-Weather Portfolio Construction: Going Long with Quality webcast, leaders from Natixis Investment Managers shared one powerful tool to help investors assess their portfolio against their own inflation outlook. Hosted by VettaFi editor-in-chief Lara Crigger, the discussion included portfolio consultant Seak Kaukas and Gateway Investment Advisers CEO, CIO, and President Michael T. Buckius.

Cyclicality Vs. Inflation Outlook

They discussed the firm’s Cyclicality vs. Inflation framework. By mapping inflation against cyclicality on a graph, it can help investors measure their portfolios. Given the quickly shifting inflation and interest rate outlook, a clear framework could help.

Natixis Investment Managers’ Equity Cyclicality vs. Inflation graph.

“We use this to help advisors position their portfolios for different outcomes,” Kaukas said. “So economic growth would be on the X-axis, inflation would be on the Y-axis.”

“The combination of the outcomes around these two factors gives you four different regimes that you can be in,” he added. “What we did is we slapped labels on them to kind of tie to how people typically think about or talk about the potential outcomes in this environment.”

Each quadrant accounts for a particular “landing” or lack thereof. Investors, then, could revisit their portfolios to see if their holdings match. Investors could consider a variety of ETFs from Natixis for whichever inflation outlook they hold. For example, the Natixis Vaughan Nelsson Select ETF (VNSE) offers an active approach that can adapt to many potential outcomes in the framework.

For more news, information, and analysis, visit the Portfolio Construction Channel.

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