Inflation hard to predict for investors: Schroders

The multi-asset fund manager for Schroders said inflation was notoriously hard to predict and investors needed to prepare for a “variety of different scenarios”.

Mr Chandler added: “There are historically few inflationary episodes in major Western economies in the past 50 years that we can learn from. Furthermore many inflation-sensitive asset classes do not have a long history on which they can be assessed.

Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said: “With the support of a host of ‘buy’ signals in recent weeks, the ‘great rotation’ is in full force. Our positive view of equities would be further reinforced if the loss of faith in China’s growth story turns out to be overdone.”

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He added that 44 per cent of investors now viewed emerging markets as offering the “worst outlook”, compared with the UK and US, where more investors were hopeful of growth.

Azad Zangana, European economist for Schroders, said: “Thus far, the QE measures have not caused inflation as the money has not been fed through the real economy. Different countries are at different stages, however.

“In the US, lending has started to pick up and that is why the US economy has been strengthening. In the UK the QE stimulus is still stuck with the banks but when it leaves this could increase inflationary pressures.”

The warnings came after a four-page analyst report by Bank of America Merrill Lynch stated that the outlook for inflation in the UK had improved. The bank said it would trim its US growth forecasts and look for 1.6 per cent growth in gross domestic product during 2013, down from 1.7 per cent.

Schroders confirmed that its acquisition of fund manager Cazenove had been completed at the beginning of the month. A spokesman for Schroders said Cazenove staff moved into the company’s London-based offices two weeks ago. The £424m deal was signed in March and has lifted total assets under management at Schroders to about £254bn.

Adviser comment
James Robson, financial planner for London-based Plutus Wealth Management, said: “Inflation is always a risk and even cautious investors are looking to retain the real value of their money. So we have to regularly benchmark our investments and look at performance relative to inflation. Clients see this as the most realistic measure of how their investments have performed. The biggest danger is that people remain cautious because they can absorb a year or two of real-term loss on their savings but this will be hugely magnified four or five years down the line.”