At Rathbones last asset allocation policy meeting, the company reaffirmed its cautiously bullish positioning with a slight overweight to equities.
Asset allocation strategiest, Ed Smith, said: “We increased our exposure to inflation-linked debt, particularly favouring US inflation-linked debt, because the implied rate of inflation over the five to 10-year period has just got down to real extremes, and we think that’s very inconsistent with the macro backdrop.“
“We’ve already seen inflation recover; in fact core inflation is already above the 2% target,” noted Smith.
Moreover, Smith explained that CPI always runs somewhat ahead of personal consumption expenditure (PCE), and inflation.
As the Fed waits to tighten policy until PCE inflation gets closer to target, that should give even more scope for the CPI to run ahead of target. These factors, in Smith’s view, should all prove positive for inflation-linked debt as a short-term tactical trade.
Rathbones also increased its exposure to gold: “We probably still have a lower weighting to gold than many of our peers, however we might have moved into an interesting year for gold. There will be quite a rare example of gold increasing at the same time as the dollar, which for sterling investors is rather attractive because you get ‘two for the price of one’.”
