Advertisement

Sebastian Lyon: hedge against inflation

While the immediate outlook may be deflationary, that's certainly not the case in the long term, says Sebastian Lyon of Troy Asset Management.

Sebastian Lyon, chief investment officer, Troy Asset Management

“At a time when so much is uncertain, one thing is clear: government spending is back on,” says Sebastian Lyon, founder of Troy Asset Management, in his latest letter to investors. The US alone will spend $2.2trn to support its economy. And at the Federal Reserve, the European Central Bank and the Bank of England “the printing presses are working hard to offset the coming slowdown”. These steps are likely to mark the start of “a new chapter for the monetary backdrop”. 

Advertisement - Article continues below

While deflation must reign in the short term given the collapse in economic activity, this “previously inconceivable” scale of stimulus measures “has laid the foundations for a rise in the rate of inflation”. Unlike the response to the global financial crisis in 2009 – which merely saw “the transfer of money onto bank balance sheets” – today’s stimulus places “increased money supply directly into the hands of those who might spend it”, which will be more inflationary.

So Troy’s multi-asset funds – such as the Personal Assets Trust – hold gold as a hedge against “greater monetary instability”, as well as inflation-linked bonds. Cash is “likely to have its value eroded if real rates go more deeply negative”, but “for now it continues to provide essential dry powder for us to deploy” – eg, into large companies with stable demand, low debt and strong cash flows. These firms are “poised to enhance their already privileged competitive positions” as smaller rivals slash spending in order to survive.

Advertisement
Advertisement

Recommended

Abby Joseph: US markets have no margin for error
Investment gurus

Abby Joseph: US markets have no margin for error

Much of the markets' recent strength is down to the US Federal Reserve using monetary policy to backstop the equity market, says Abby Joseph Cohen, se…
31 Jul 2020
Christopher Wood: hold a growth and value “barbell“ portfolio
Investment strategy

Christopher Wood: hold a growth and value “barbell“ portfolio

Christopher Wood, global head of equity strategy at investment banking firm Jefferies, suggests a “barbell“ strategy of holding growth and value stock…
10 Jul 2020
Terry Smith: I'm not used to being ignored
Investment gurus

Terry Smith: I'm not used to being ignored

Running a £20bn fund doesn’t guarantee good treatment from the companies you invest in.
22 Jun 2020
Jeremy Siegel: "pandemic played right into the hands of the FAANG stocks”
Tech stocks

Jeremy Siegel: "pandemic played right into the hands of the FAANG stocks”

Jeremy Siegel, professor of finance at Wharton, says the tech giants benefited from the closure of many physical businesses.
12 Jun 2020

Most Popular

Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Gold hits the big $2,000 level – are Aim miners about to play catch up?
Gold

Gold hits the big $2,000 level – are Aim miners about to play catch up?

With the price of gold shooting through $2,000 an ounce, the yellow metal looks unstoppable. Things are so bullish, even Aim-listed junior gold miners…
5 Aug 2020
Too embarrassed to ask: what is “real return”?
Too embarrassed to ask

Too embarrassed to ask: what is “real return”?

MoneyWeek's latest "too embarrassed to ask” video explains what a real return is and why it's so important for investors.
5 Aug 2020