The worst thing a client can do when it comes to responding to inflation is “invest in the rear view mirror”, Evelyn Partner’s head of multi-asset funds, Ben Seager-Scott has told advisers.
Speaking at FTAdviser’s Financial Advice Forum last week (September 22) in London, Seager-Scott said that people "need to get back to the idea that inflation is normal" and clients need to understand the worst thing they can do is “constantly react to what has just happened”.
“Medium inflation, with a 2 to 4 per cent range, is normal long term and is actually a sign of a healthy economy. Broadly speaking, for the medium term, it is positive for the economy and positive for assets in a way that the bull run of the last decade probably hasn't been helpful,” Seager-Scott said.
His comments were made during a discussion on how clients can inflation-proof their portfolios.
In Seager-Scott’s view there is not really any way of doing this, instead the decision point should be whether over the next 10 years inflation is going to be, on average, more or less than 3.5 per cent.
“In theory, if you hold an inflation-linked gilt to maturity, switch it off and never look again, you can attempt to lock in a bit of a real yield, but that's very difficult to do. So realistically, diversified portfolios are probably your best option,” Seager-Scott said.
Uncertainty is certain
Joining him on the panel, which was sponsored by Time Investments, was Anstee & Co’s managing director, Caroline Anstee and Time Investments fund manager Roger Skeldon, who both agreed attempting to ‘beat’ inflation is futile.
Anstee said from her experience managing an advice firm, the key thing to do when clients are concerned about inflation is to be sure to keep the communication lines open and be proactive in contacting them.
“Everybody's inflation rate is very different. It's very important to put it into perspective in terms of their life and to be able to explain to clients what is actually happening in the world.
“The big thing to remember is that uncertainty is certain. I've been doing this for over 40 years, there's always something happening in the world and it's really about trying to see through the noise,” Anstee said.
Fund manager Skeldon, said there is no perfect protection from inflation, especially in the short to medium term but focusing on specific funds with a long-term vision is helpful.
When asked if he is seeing a ‘flight to safety’ towards alternative asset classes, given the challenging environment that we're in at the moment, Skeldon said he is seeing different behaviour in aspects of real estate and real assets, like renewable energy.
“There's a lot of risk in the market. We all know that. The benefit of these assets is the long term focus. So yes, there's volatility, there’s volatility throughout all markets. It's about understanding the sectors and what drives those sectors in the long term.