The 17-page report warned that the unprecedented scale of monetary easing, and in some cases strongly-enforced austerity, could create “perplexing and uncharted waters” for governments, the industry and end investor.
It argued that the effects of this on different asset classes must be scrutinised closely as investors cannot rely on one class to shield them from inflationary damage, and the effects of inflation could seriously erode their pension or other long-term savings.
Hiten Savani, investment director for Fidelity and author of the report, said portfolios should be tilted towards asset classes that have performed well historically in certain stages of the economic cycle, if investors can correctly identify the prevailing economic environment.
He added: “Inflation erodes the real yield on assets, making it imperative that investors choose wisely when allocating assets in an inflationary phase.”
Mr Savani highlighted commodities as a traditional shield against inflation, despite the recent volatility in the price of gold, and also highlighted equities and real estate as effective tools when inflation is at manageable levels.
He also backed the use of inflation-linked bonds within portfolios as a way of providing “very precise immunisation to specific reference indices when held to maturity”.
Adviser view:
Robert Lockie, certified financial planner for London-based Bloomsbury Financial Planning, said: “We have to diversify our investments and review them regularly but we do not, and cannot, make predictions about the future.
“The trouble with economic forecasting is that it is not terribly reliable, and even if it is accurate, the impact on the market is not necessarily reliable either.”
