Ruffer: The illusion of diversification when rates are rising and the Fed is hawkish
8 April 2022
Ruffer fund manager Duncan MacInnes challenges the wisdom of adding different types of equity risk to portfolios when the US Federal Reserve is clamping down on inflation and interest rates are rising from historic lows.
The shape and probability of this boom might be changing in the face of war, but for this scenario we have exposure to energy, commodities and financials. These are (still) some of the cheapest sectors of the market implying investors ascribe this right tail outcome a low probability.
Where we think you don’t want to be is in the middle of the distribution – for a resumption of the old regime of low and stable growth and inflation.
The winners of that regime were tech, quality growth stocks and long duration assets like venture capital, renewables and infrastructure which look extremely vulnerable to the rising interest rates and risk premium environment.
Yet this seems to be where most investors are exposed.
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