Watch Freddy Lim, co-founder and CIO, Philipp Muedder, Head of Financial Planning, and Stephanie Leung, Co-CIO, discuss the latest global events and their potential impact on the markets and on our investment portfolios.

In this episode:

1. StashAway Market Commentary 19 May 2022 [0:00]
2. A look at the latest US inflation data [0:17]
3. Could the bond market start to stabilise? [4:19]
4. How to approach investing in thematic portfolios [7:13]

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#inflation #bondmarkets #thematicportfolios…(read more)

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Inflation and bonds are two major factors that can greatly impact an investor’s portfolio. As inflation erodes the purchasing power of a currency, it can have a significant impact on the value of bonds and other fixed-income securities. In this article, we will discuss our take on inflation and bonds, and how investing in thematic portfolios can help mitigate the risks associated with these factors.

Inflation is a persistent increase in the general price level of goods and services in an economy. When inflation is high, the real returns on fixed-income securities such as bonds are reduced, as the purchasing power of the income generated from these investments is eroded. This can be particularly concerning for investors who rely on a stable income stream from their bond investments.

In response to rising inflation, central banks may raise interest rates in order to slow down economic growth and reduce the inflation rate. This can have a negative impact on bond prices, as the yields on newly issued bonds are typically higher than those on existing bonds. As a result, the value of existing bonds decreases, leading to potential losses for bondholders.

In light of these risks, investors may consider investing in thematic portfolios as a way to diversify their investment holdings and help mitigate the impact of inflation and rising interest rates. Thematic portfolios are investment strategies that focus on a specific trend or theme, such as infrastructure development, renewable energy, or technology innovation. By investing in thematic portfolios, investors can gain exposure to sectors or industries that may be less susceptible to inflationary pressures and interest rate movements.

For example, infrastructure investments typically involve long-term projects that are essential for economic development and growth. These projects often require significant capital investment and have long-term revenue streams, making them less sensitive to short-term fluctuations in interest rates and inflation. Similarly, investments in renewable energy and technology innovation may offer attractive growth prospects, as these sectors are driven by long-term global trends rather than short-term economic cycles.

Additionally, thematic portfolios may offer diversification benefits by investing in a range of industries and sectors that can help offset the negative impact of inflation and rising interest rates on traditional fixed-income securities. By spreading their investments across different thematic portfolios, investors can potentially reduce the overall risk in their portfolios and improve their chances of achieving long-term growth and stability.

In conclusion, inflation and rising interest rates can have a significant impact on bond investments, leading to reduced real returns and potential losses for bondholders. However, by investing in thematic portfolios, investors can gain exposure to sectors and industries that may be less susceptible to these risks, and potentially achieve better long-term growth and stability for their investment portfolios. As such, we believe that thematic portfolios can play a valuable role in a well-diversified investment strategy, particularly in an environment of rising inflation and interest rates.