September 1, 2022
It’s Still About Rates & Inflation
Tim Urbanowicz, CFA
Head of Research & Investment Strategy
Innovator Capital Management
Late last year, we outlined why traditional risk management strategies that have worked so well in the prior regime, characterized by low rates, low inflation, and consistent growth, would be less effective moving forward. Our view was rooted on the premise that the risk reward tradeoff for core bonds was extremely poor. Structurally, higher inflation was likely to pressure rates higher, low starting yields would limit upside potential, and diversification benefits were unlikely given the common risks facing both equities and bonds. While a lot has taken place in the first eight months of the year, we still see a similar backdrop for investors. This month, we unpack this view and why we believe investors are better off exploring ways to tie their “lower risk” dollars to the equity market over the bond market.