Tabula : UK inflation hit a 40-year high of 10.1% in September and US inflation remained above 8% as energy and food prices kept prices higher.
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Michael John Lytle CEO of Tabula Investment Management
At the same time, the US 10-year breakeven rate, a measure of expected inflation over the next 10 years, is currently 2.5%. But new research(1) by European ETF provider Tabula Investment Management Limited (“Tabula”) shows that just 40% of professional investors are ‘very concerned’ about inflation.
The majority of those surveyed (78%) expect US inflation to fall to the Federal Reserve target of 2% by 2024, while a surprising 65% of respondents see UK inflation falling to 2% in the next two years. Similarly, 70% of those asked suggested that Eurozone inflation would be 2% or lower within two years.
Table: Despite many inflation drivers being longer-term or structural, most investors see inflation coming under control within two years (data shows % of professional investors responding)
| Inflation will return to 2% | In the US | In the Eurozone | In the UK |
| In the next six to 12 months | 17% | 22% | 20% |
| In one to two years | 61% | 48% | 45% |
| In two to four years | 18% | 18% | 23% |
| In over four years’ time | 4% | 12% | 12% |
“Rising inflation and interest rates are major challenges for investors,” said Michael John Lytle, CEO of Tabula Investment Management. “But the real concern is that many wealth and pension fund managers appear to be underestimating quite how sticky current inflation levels might be.”
European inflation linked ETFs have seen net outflows this year with total assets in inflation linked funds now just US$18 billion compared to US$28 billion at the start of the year.
“Many of the current drivers of higher prices, such as energy and food prices, as well as the dramatic reversal of globalisation trends that we are seeing, are unlikely to abate at the rate expected by our survey respondents,” added Tabula CIO Jason Smith. “It remains to be seen whether monetary policy can tame inflation caused by stark supply-demand imbalances. If not, many professional investors may find their funds are under-allocated to products that protect against inflation.”
The Tabula US Enhanced Inflation UCITS ETF is the only ETF in the market that provides exposure to both realised and expected US inflation. It trades actively on the London Stock Exchange (USD: TINF LN; GBP-hedged: TING LN), Xetra (EUR-hedged: TABI GY), Borsa Italiana (EUR-hedged: TINE IM) and SIX Swiss Exchange (CHF-hedged: TINC SE).
Source : ETFWorld.co.uk
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