CIO Insights with Stephanie Leung, Group Deputy CIO

I’m thrilled to introduce you to our new Group Deputy CIO, Stephanie Leung. Stephanie has managed multi-asset and multi-billion dollar portfolios and has more than 17 years of experience in global portfolio management for Goldman Sachs, institutional investors, and family offices.

In addition to leading StashAway in Hong Kong, she’ll also be working with me and our editorial team to make sure you continue to get the most relevant information you need about the markets and economy.

Here are just a few things you’ll be hearing more from Stephanie on:

Deep dives on asset classes and how they work to generate long-term gainsStephanie has first-hand experience when it comes to both short- and long-term investing approaches. She started out as a short-term trader at Goldman Sachs before shifting to a longer-term investing approach, managing diversified portfolios based on meaningful economic trends.

A fresh outlook on investing trendsYou may hear more from her on topics like thematic investing and cryptocurrency!

Now, let’s have a dive into what investors have been concerned about in the past weeks: Inflation.

US inflation rises above economists’ expectations

Last month, the US Consumer Price Index (CPI) reported a rise of 4.2% year on year, which was higher than economists’ median expectations of 3.6%. CPI measures the weighted average basket of consumer goods and services. So when CPI rises, generally, prices have risen, indicating inflation.

When reading recent headlines on rising US inflation, it’s important to keep a couple of points in mind:

• Inflation is always in the economy and mild inflation between 2-2.5% is normal and desired by central banks.
• Although 4.2% is a high inflation rate, it’s mainly a US phenomenon; in other parts of the world, inflation rose only moderately.

What’s behind the recent rise in inflation?

The main driver behind increased inflation right now is that COVID-19 has disrupted global supply chains, which has caused the cost of raw materials and transportation to rise. When looking ahead, it’s important to remember that this rise in costs will ease over the next few years as industries adjust their supply chains and economies reopen their borders following successful vaccine drives.

It’s also important to keep in mind how the CPI measures inflation: the CPI compares inflation rates against the rates from the year before. And last year there were steep declines in prices. (Remember when oil prices were negative?!)

What can investors do about inflation?

As inflation reduces the dollar’s value, investors may see their cash value and investment returns dilute. That makes it extra important not to have too much of your assets in cash.

Instead, buffer your portfolio with assets that are likely to rise in an inflationary and low interest rate environment.

Some assets that benefit from inflation include inflation-linked bonds, which are indexed to inflation and will rise in value. Emerging market equities also benefit as they have a higher exposure to natural resources. Natural resources are positively correlated to inflation as their prices are likely to rise as they move through the economy in the form of housing, food, fuel, or more. And Gold and REITS’ asset prices rise as more investors turn to these assets to hedge against the falling US dollar, increasing their demand.

As we’ve just seen, markets react quickly to global events - such as the pandemic’s supply chain issues - and the key to staying on top of any economic change is not to be reactive but to build your portfolio preemptively. A portfolio that’s diversified across asset classes will provide a buffer against the kind of inflation we’re seeing.

StashAway’s portfolios are ready for the recent inflation

Back in May 2020, our investment algorithm detected uncertain economic conditions. At that point, our system re-optimised our clients’ portfolios’ asset allocations to an “All-Weather” strategy so that they’d be prepared for a potential high-inflation environment.

Specifically, our “All Weather” strategy hedges a portfolio against inflation with a higher allocation of Gold while also staying invested in asset classes with medium to high long-term growth potential. In short, it keeps a portfolio ready in times of uncertainty.

Our investment framework, ERAA®, will continue to monitor the economic environment by analysing growth data and real-time economic inputs. Depending on inflation’s rate of change in the coming months, the algorithm may re-optimise your portfolios further to enhance your protection against inflation. Likewise, it might also re-optimise for other economic factors such as growth.

More about the co-author, Stephanie Leung

Before her career in finance, Stephanie worked at McKinsey & Co., advising companies in the Asia Pacific region. She holds a Masters in Computer Science majoring in Artificial Intelligence from Stanford University and a Bachelor of Computer Engineering from the University of Michigan.

Besides her day job, she’s also the Co-founder and Advisor of Snow and Flow Snowsports School in Niseko, Japan and is currently developing Asia’s first-ever air-purifying lamp, Airluna.

In her free time, you’ll find her running, snowboarding, sailing, or simply having a nice glass of wine!