As you may know, in July 2021, we reoptimised your portfolios to protect against rising US inflation. Since then, inflationary pressures have continued to rise and proliferate across the global economy. Now, with rising inflation, we’re reoptimising your portfolios to continue maintaining effective inflation protection.
As always, when we reoptimise, we do so in a way that’s mindful of valuation. So, we’re reoptimising your portfolios with assets that have relatively attractive valuations, and minimising exposure to overvalued ones.
Here are some of the changes you can expect to see in your portfolio:
Adjustments to our existing inflation hedges
Our investment framework, ERAA®, is reducing allocations to developed and emerging market government bonds in favour of high-quality US corporate bonds and inflation-linked government bonds. ERAA® is reducing its allocation to US consumer staples (XLP), US REITs (VNQ), and slightly in US energy (XLE) due to their high valuations, and is in favour of higher allocations to US small-cap (IJR) and financial stocks (XLF).
Adjustments to our international equities allocation
Due to valuation changes, ERAA® is reducing allocations to Australian and Japanese equities, favouring a higher allocation to Canadian equities. ERAA® maintains its allocation to China technology because its low valuation presents significant medium-term opportunities.