The firm writes that some investments, such as TIPS, have identifiable and cyclical weaknesses that should be accounted for in implementation. Others, such as commodities, while a good inflation hedge through a cycle, will introduce significant volatility to a portfolio.
In addition, Segal says it is important for investors to be aware that certain parts of their portfolios (i.e. equities) already provide some inflation protection.
Segal Advisors suggests the following actions related to portfolio positioning for plan sponsors concerned about rising inflation:
- Review asset allocation and portfolio structure,
- Weigh the pros and cons of various strategies in light of return needs and risk tolerance,
- Develop a blended approach incorporating the individual strengths and weaknesses of each strategy, and
- Create or revise investment guidelines and/or overall investment strategy.