Ardea warns investors of new volatility
Investors face a new period of volatility as low interest rates are contributing to increasingly sensitive portfolios and rising risk of "inflation shock", according to a fixed income investment firm.
Ardea has issued a warning to investors to avoid "inflation complacency" due to the powerful impact of unexpected inflation outcomes on volatility.
Ardea's principal, Tamar Hamlyn, noted that the market interest rate expectations for the next 12 months had changed by nearly 40 basis points in the space of two weeks following the March quarter surprise inflation result.
"This was a large shift in an already flat interest rate environment, which resulted in substantial volatility in the Australian bond and currency markets,"
"Any complacency could be dangerous, given that even a modest uptick in price pressures would have a large impact on interest rate sensitive assets," he said.
Additionally, according to Ardea, the risk of inflation shock was particularly high for investors in the retirement phase or those seeking to expand their ageing client base.
"For investors managing drawdowns in capital to fund retirement living standards and maintain spending power, it is particularly important to recognise and manage inflation risk volatility, as these investors lack the ability to accrue the benefits of compounding as their capital is withdrawn — particularly if this occurs during periods of market volatility," he added.
AUTHOR
Oksana Patron
Recommended for you
Infrastructure assets are well-positioned to hedge against global uncertainty and can enhance the diversification of traditional portfolios with their evergreen characteristics, an investment chief believes.
Volatility in US markets means currency is becoming a critical decision factor in Australian investors’ ETF selection this year.
Clime Investment Management is overhauling the selection process for its APLs, with managing director Michael Baragwanath describing the threat of a product failure affecting clients as “pure nightmare fuel”.
Global X will expand its ETF range of exchange-traded funds next month with a low-cost Australian equity product as it chases ambitions of becoming a top issuer of ETFs in Australia.
