CEO of Research Affiliates Chris Brightman says that inflation is here to stay for a while, and that equities will continue to fall, reports an article in CityWireUSA. He told the news outlet that he’s favoring commodities over stocks, and that he’s sold his personal real estate.
Raising interest rates to 3% will not stop inflation, and Brightman doesn’t believe the Fed will act strongly enough. That could be bad news for equities as high inflation will make the equity market volatile. Therefore, equities will keep falling, Brightman said, because “we never see a high and stable inflation.” In addition, inflation will make stocks and bonds closely correlated, which could negatively affect a standard 60/40 portfolio where the stocks are meant to produce growth alongside volatility and the bonds are supposed to provide stability and income, the article reports.
Brightman recommends adding exposure to commodities in order to combat inflation in their portfolios, pointing to commodity-oriented stocks and foreign currencies from commodity-producing countries as options. The Pimco All Asset fund, which is managed by Brightman and Research Affiliates founder Rob Arnott, has less than 25% in equities with virtually none from the U.S. The fund shows liquid alts hold 12% of the fund’s assets, EM bonds hold another 15%, commodities 9%, and REITs and MLPs 12% through the end of the first quarter of 2022. Meanwhile, their more flexible Pimco All Asset All Authority fund has no U.S. large-cap stock exposure and shows 14.5% in liquid alts, almost 20% in EM bonds, with 13% in commodities and 14% in REITS and MLPs for the same period.
Commodities are also supported by a strong dollar, which will send inflation around the world. But commodities aren’t meant for the long-term, Brightman warns; they “don’t provide a positive return because of productivity growth.” But a well-managed futures portfolio will bring a return after rebalancing.
In the world of real estate, Brightman said he is selling all of the real estate in his personal account as it isn’t “normal that real estate goes up 20% per year.” With swiftly rising mortgage rates, it’s a good moment to get out of private real estate investments, he advised. As for public markets, Brightman told CityWire that he favors REITs over other sectors in the stock market but added, “I don’t like the stock market.”