Inflation Volatility & Portfolio Construction | i3 Webinar with Ruffer LLP

The Return of Inflation Volatility


The return of inflation volatility represents the most challenging and significant paradigm shift in decades. Asset owners are going to have to look harder to find protection, as the last 20 years of optimisation will have to give way to resilience.

In this webinar, Alex Lennard, Investment Director of Ruffer LLP, looked at why old habits must be broken, what new ones need to be formed and how Ruffer are reimagining the art of portfolio construction.

Transcript (with timings)

3:45 –Recap: The previous inflationary regime and how we got to the ‘Ice Age’.

5:04 – The expected future demands on the economy

6:04 – What effect did China have on other central banks?

7:18 – Politicians and governments are taking a more active role in the economy and the lines of monetary and fiscal policy are becoming blurred.

9:14 – The period after the second world war is indicative of where inflation is going now.

10:56 – Two years of fiscal and monetary policy have already caused tightness in the labour market, with US wage rises going from a steady 2.5%  to nearly 7% over this period.

12:15 – Price of goods in the G7 had been deflating for over 30 years but are now rising sharply.

13:06 – Inflation volatility and bond volatility are highly correlated.

16:33 – The trouble for investors is most evident in the bond market, but equities market duration has only ever been higher than it is now during the dot com bubble, so may be more intolerant of inflation and interest rate volatility.

18:53 – Are investors able to wait it out and change their approach?

21:34 – Geopolitics can have an impact on inflation.

25:09 – Bond markets will have to accept negative real rates.

26:44 – Can price inflation and wage inflation both be volatile?

27:40 – Volatility of inflation expectations is as important as realised inflation.

31:03 – Equity duration has increased as a result of the technology sector and longer term cashflows.

32:23 – Trends, particularly around ESG, have meant structural underinvestment in certain sectors – meaning there are opportunities in those areas.

33:37 – Credit default swaps are a real way to get protection into portfolios.

34:28 – What assets do you need to own to address higher inflation?

37:09 – You can’t have a portfolio that hedges out all risks and ends up with a zero-sum game.

42:06 – Technology is the primary deflationary force left in the world.


Presenter: Alex Lennard, Investment Director, Ruffer LLP

Moderator: Teik H. Tan, Executive Director, Investment Innovation Institute