NEW YORK, May 7, 2014 /PRNewswire/ -- Natural-resource equities could provide a better hedge against inflation than commodities themselves, according to a white paper from The Boston Company Asset Management, LLC (TBCAM), the Boston-based equity investment boutique of BNY Mellon.
This could be a particularly appropriate time to consider strategies that hedge against a rise in inflation as interest rates appear to have bottomed, the report said. It notes that an increase in the federal funds rate could come as early as the spring of 2015, which could spark a rise in inflation.
TBCAM warns that investors may wish to prepare for inflation despite concerns from the International Monetary Fund and U.S. Federal Reserve that inflation is too low. Such concerns may prompt central banks to add even more stimulus through quantitative easing and negative real rates, said Robin Wehbe, author of the report and portfolio manager for TBCAM.
"Preparing for the eventual transformation of stimulus into excess liquidity is paramount," Wehbe said. The report, Inflation Investment Guide: The Advantage of Natural-Resource Equities Allocation, posits that natural-resource equities may provide inflation-hedging benefits without significantly reducing the performance of an investment portfolio in pre-inflationary time periods. Equities, natural resource equities and commodities perform differently across different inflation regimes, the report said.
"In times of low to moderate inflation, equities typically are the clear outperformer," said Wehbe. "However, natural-resource equities have historically caught up and eventually overtaken the broader stock market to turn in the best returns as inflation begins to rise. Commodities tend to lag all equities in almost every inflationary environment, only outperforming the broad market in times of very high inflation."
Rising U.S. interest rates contribute to a strengthening U.S. dollar and could drive inflationary pressures around the world, the report said. Countries with current account deficits will feel these pressures the most, according to TBCAM. The report notes that concerns about inflation have been blamed for the sell-off in emerging markets over the last year.
"It's important to remember that commodities have an expected return of zero," said Wehbe. "If you look at the historical return of commodities against other asset classes, such as equities, you'll see that they have significantly underperformed."
The report is available at TBCAM's web site:
Notes to Editors:
The Boston Company Asset Management, LLC, a BNY Mellon Investment Management boutique, provides active equity investment-management services for corporate, public, mutual funds and union sponsored and jointly trusteed retirement plans, endowments and foundations. Assets are managed by The Boston Company as well as its personnel acting as dual officers of either The Dreyfus Corporation or The Bank of New York Mellon.
BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.6 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of March 31, 2014, BNY Mellon had $27.9 trillion in assets under custody and/or administration, and $1.6 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.
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