Positioning for Higher Inflation will be the Portfolio Construction Topic in 2022
The number one question coming from advisors is, "how should I prepare my portfolios for higher inflation?" Astoria Portfolio Advisors has had an out of consensus view that inflation would be higher than most were expecting. We began running inflation linked strategies in mid-2020.
As a refresher, cyclically oriented sectors such as energy, materials, industrials, and financials have historically shown higher sensitivity to rising inflation. Indeed, energy stocks were the best performing sector in the US last year (see chart below).
2001 Return by Sector
Source: FactSet. Data as of December 31, 2021.
Keep in mind that cyclicals are still trading at a discount to the market. For instance, the S&P 500 Energy sector trades at 12 PE ratio based on 2022 estimates. Hence, in Astoria’s opinion, inflation-linked assets still offer an attractive margin of safety.
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Please note that Astoria Portfolio Advisors serves as a subadvisor to the AXS Astoria Inflation Sensitive ETF. The information contained does not imply a recommendation for PPI. Readers should consult their financial advisor to determine if PPI is a suitable investment for their portfolio. For more information on PPI, please click here.