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”. 

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.

Recommended

Investor optimism ebbs in Indian stockmarkets
Emerging markets

Investor optimism ebbs in Indian stockmarkets

India’s BSE Sensex stockmarket index has fallen by almost 8% so far this year. Interest rates are on the rise, and foreign investors have been selling…
18 May 2022
Aviva: a share for income investors to tuck away
Share tips

Aviva: a share for income investors to tuck away

Insurance giant Aviva is one of the highest yielding stocks in the FTSE 100 – and it’s cheap, too, making it a tempting target for income investors. R…
18 May 2022
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
18 May 2022
Inflation is now at its highest since 1982 – is this the peak?
Inflation

Inflation is now at its highest since 1982 – is this the peak?

At 9%, UK inflation is at its highest for 40 years – and it’s not going anywhere soon, says John Stepek. That means you need to be much more active a…
18 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022