Inflation Hedges and Real Assets Outperform as Investors Re-price Inflation risks

by | Jun 24, 2021 | Market Insights

In this month’s Cross Asset Review, we assess the past performance of various asset classes and draw implications for multi asset investors. In May, inflation hedges and real assets outperform as investors re-price inflation risks. The top performing assets in May were Gold, Emerging infrastructure, Commodities, Frontier market and EM markets. The Australian dollar index dropped by 1.4% reflecting boarder caution from investors

1. Real assets outperform as Investors Re-price inflation Risks

  • The top performing assets in May were Gold, Emerging infrastructure, Commodities, Frontier market and EM markets. The Australian equities VIX also rose over the month reflecting higher investor uncertainty.
  • The AUD Index (TWI) dropped 1.4% over the month reflecting broader caution from investors. The S&P500 VIX retreated from previous month.
  • Domestic and Global Bond markets delivered flat returns for the month but down 2-3% over 6 months.
  • For Financial Year to Date (FYTD), Global equities unhedged is the best performing major asset class with 36% return followed by Australian equities (mid, small and micro) and Commodities.
  • On the other hand, the worst performing asset class for FYTD include defensive assets such as domestic and global bonds, Gold and GREITs
  • Regardless of the dispersion in asset class returns, investors with well diversified portfolios are nicely positioned to realise a very healthy return for 2021 financial year.
    • Picture1 Inflation Hedges and Real Assets Outperform as Investors Re-price Inflation risks

    2. Asset Growth over Past Decade

  • Over the 10-year period, the riskiest asset sectors such as large-, small- and mid-cap equities have delivered the strongest returns.
  • The VIX indices was the worst performing indices over the past 10 years followed by the Australian dollar trade weighted index and commodities.
  • CBOE VIX index spiked in January and fell thereafter in February, with the rolling out of COVID 19 vaccines. The low market volatility is an apt reflection in of the gradual stabilization of economy going forward.
    • Picture2 Inflation Hedges and Real Assets Outperform as Investors Re-price Inflation risks

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