How inflation will continue to affect portfolios

Rising inflation continues to be a concern for investors and advisors alike. 

Listen to the full podcast on AdvisorToGo, powered by CIBC.

Amber Sinha, senior portfolio manager of global equities at CIBC Asset Management, says that while some high prices are likely to fade with the Covid-19 pandemic, other inflationary elements could last longer.

High prices reflect disruptions in the global economy, namely Covid and the impact it has had on production, transportation, logistics and supply chains, Sinha said. “Once Covid is firmly in the rearview mirror, we expect a lot of these disruptions to go away and a lot of things to normalize.”

However, Sinha said that return to normal likely won’t include wages. While prices for oil, rent and other purchases can go back down, “wages generally tend to be sticky.”

So what does that mean for client portfolios?

“While we remain fairly confident that at least some aspects of the inflationary pressures will go away with time, one can’t be 100% sure in this business,” said Sinha. “So we want to have a portfolio that should do well in multiple scenarios, including one in which inflation stays higher.”

Sinha, who manages the CIBC European Equity Fund and the CIBC Asia Pacific Fund, said he generally skews toward higher-quality franchises “where pricing power is better than in some other areas.” That includes choosing well-known brands such as Sony, Samsung and Nike over competitors. 

Further, given the current inflation uncertainties, Sinha said he tries to avoid certain business models, such as those with high fixed costs and high wage bills.

Because wages are unlikely to drop when other prices do, Sinha said he’s “a little more cautious on companies that have inflexible cost structures with regards to labour in particular.”

Rising interest rates in response to inflation can also affect portfolios. Sinha said the same “high-quality defences” will help.

This article is part of the AdvisorToGo program, powered by CIBC. It was written without input from the sponsor.

Maddie Johnson

Maddie is a freelance writer and editor who has been reporting for Advisor.ca since 2019.