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Wealth-X Presents: What Do You Buy the Person Who Has It All?

Wealth-X, the global ultra-high net worth prospecting, intelligence and wealth due diligence firm, has curated a selection of thoughtful gifts that suit the global lifestyle of the ultra-wealthy, regardless of the season, from an US$ 10,000 custom luxury sneakers to a US$ 60 million Superyacht. The list includes ten exclusive gifts ideas:

1. Polar Star Superyacht

The 63.4 m (208’) Polar Star by Lürssen combines the capabilities of an explorer vessel with the sleek lines, interior volume and amenities of a modern luxury superyacht. For total comfort and a relaxed Hamptons beach-house feel, the expansive interior features a wide selection of living areas and facilities, including gym and movie theater. The abundant outdoor spaces, spanning five decks, host sun lounging and “al fresco” dining areas, a large Jacuzzi, bar, barbecue and open-air cinema. Polar Star sleeps up to 12 guests in six large staterooms, and the panoramic master suite with private study on the upper deck enjoys unobstructed views. The Polar Star’s comprehensive list of toys and tenders includes a 29’ Naiad jet tender and a 25’ Malibu Wake setter tender, so water-sport “aficionados” can enjoy extreme thrills surfing waves of up to 2m tall. The superyacht can be purchased for EUR 55,000,000 and is also available to charter from EUR 380,000 per week.

2. Tiffany & Co. out of retirement jewelry collection

The luxury jewelry house Tiffany & Co. has embarked on its first collaboration with another retailer — Dover Street Market, the cutting-edge multi-brand emporium established by Comme des Garçons’ Rei Kawakubo. The capsule “Out of Retirement” collection consists of 18 limited-edition pieces — eight jewelry designs and 10 gift items — inspired by styles from the Tiffany & Co. archives. The offerings include witty sterling silver gifts such as a fish flask riffing on the old “drink like a fish” adage (price upon request), a pillbox shaped like a miniature Chinese take-out box (US$ 545) and party hat (US$ 780) with matching party horn (US$ 1,550). Other vintage pieces are a trio of postage money clips in 18 karat gold (US$ 5,450) and a wood interlock bracelet in 18 karat gold with interlocking rose gold bangle (US$ 10,600).

The exclusive gift items and jewelry will be showcased in installation spaces in Dover Street Markets New York, Ginza and London stores, with site-specific displays inspired by Gene Moore, who designed Tiffany’s iconic windows from 1955 to 1994. To honor the partnership, the classic Tiffany Blue Box will give a nod to Dover Street Market by replacing its signature white ribbon with black on all packaging for the collection.

The limited-edition items will be available at Dover Street Market until January 2016.

3. Myswear custom luxury sneakers

E-commerce fashion retailer Farfetch has partnered with London-based footwear brand Swear to launch a customization program named Myswear. The service will combine 3D modeling technology with expert artisanal Portuguese craftsmanship; the platform allows customers to design their own sneakers, choosing among 16 unisex silhouettes and over 80 combinations of colors and materials, including ethically sourced python, ostrich and crocodile skins. The footwear designs can run from US$ 385 to US$ 10,000, with four to six weeks lead time from design submission to delivery. Each finished design will be handmade in Portugal, and buyers can opt to have their initials subtly foiled or embossed on the tongue of the sneaker.

4. Chivas 12 made for gentlemen by Globe-Trotter steamer trunk

Made on request, this modern interpretation of a timeless steamer trunk is a collaboration by Chivas Regal and Globe-Trotter. Featuring bespoke burgundy fibreboard, American white oak from oak casks and a hand engraved copper plaque made from a retired Scotch whisky still, the steamer trunk also comes with specially created compartments for shoes, a drawer to hold up to eight watches, leather covered hangers for pristine suits and a beautifully crafted mini bar with mirrored back. The retail price is GBP 12,000 (US$ 18,000).

5. The Citation Longitude private jet

The Citation Longitude is a super-midsize business jet with a range of 3,400 nautical miles, a payload of 1,500 pounds and a cruise speed of 550 mph. The spacious cabin has seating for up to 12 with ample legroom, and the jet provides the quietest interior in its class. Natural light is in plentiful supply, with 15 large windows positioned for optimal viewing. While enjoying the view, passengers can stay connected and productive utilizing the standard Internet and cabin management system. The forward wet galley, finished in fine hardwoods, has plenty of room for food preparation. Cabin service is enhanced by hot and cold water, generous cold storage, large supply cabinets and can accommodate an espresso maker and a microwave oven.

6. Richebourg Grand Cru wine

A rare vintage from Burgundy, the Richebourg Grand Cru garnered media attention as the world’s most expensive wine this summer, just after the famous French wine-making region was named a U.N. world heritage site. UNESCO recognized the uniqueness of the vineyards of the Cote de Nuits and the Cote de Beaune south of Dijon, which produce some of the finest red wines in the world made from pinot noir and chardonnay grapes. The Richebourg Grand Cru currently sells at an average US$ 14,478 per bottle across all vintages and all merchants stocking it, according to Wine-Searcher. In particular, the 1985 regularly commands up to US$ 20,000 a bottle.

The Richebourg Grand Cru was a Cote de Nuits created by visionary winemaker Henri Jayer, who died in 2006 at the age of 84. Jayer was against using chemicals in the winemaking process and only produced about 3,500 bottles per year. As a result of the low supply and high demand, this wine has been one of the priciest in the world since May 2011.

7. Zhoujie Zhang Evolution of a chair artwork

This stainless steel, mirror finish piece is a unique 2011 artwork by furniture designer Zhoujie Zhang, known for integrating automated digital design and elements of spontaneity and chance. To produce his pieces, Zhang inputs basic mathematical instructions into a computer program, which then generates the object forms. The pieces are then cut, assembled and polished by hand at Zhang’s in-house workshop. The price of “Evolution of a Chair” is US$ 20,000.

8. Four Seasons’ around the world tour

Since 2012, Four Seasons has offered extravagant world tours via private jet with TCS World Travel. However, this spring, the luxury resort company started running tours on its own fully branded private jet (a Boeing 757-200ER), with more opportunities to provide its famous levels of service at 35,000 feet in the air. For US$ 132,000 per person starting in January, up to 52 passengers can enjoy a 24-day voyage of discovery, spanning the Taj Mahal, Sydney Opera House, Bora Bora and jungles of Chiang Mai. The inclusive, exquisitely curated tour removes the ordinary hassles related to travel; Four Seasons handles all accommodation, meals, drinks, ground transportation and custom excursions.

There are at least 21 hotel-trained crew and staff on board each Four Seasons flight, including three pilots, two engineers, a travel coordinator, concierge and executive chef. During trips that involve adventurous activities — such as game watching in the Serengeti — a physician and a photographer also are available. Each guest receives an iPad Air 2 in advance of the trip for pre-loading entertainment; upon boarding, passengers each get a cashmere blanket, Bose noise-cancelling headphones and custom leather travel journal by Moleskin — all theirs to keep.

9. BAC Mono Marine Edition supercar

BAC has created the “Marine Edition” of its Mono supercar — a single-seat sports car specifically designed to be stored on a superyacht. Weighing only 580 kg, the ultra-lightweight model is powered by a new 305hp normally aspirated engine delivered through a Hewland FTR gearbox, as found on current F3 race cars, and it can reach 0-60mph in 2.8 seconds. Launched in collaboration with yachting company Camper & Nicholsons, the Marine Edition will feature anti-corrosive ultra-high specification components for performance and durability, proprietary lifting system for safe and easy hoisting, an Environmental Control Container System for on board storage in climate-controlled environment and complete customizable designs to complement the colour scheme of the yacht. It is built to order at GBP 500,000 (US$ 750,000).

10. 1201 Laurel Way, Beverly Hills

The six-bedroom, 10-bathroom, 11,000-square-foot estate sits on a promontory in the hills on nearly an acre north of Sunset Boulevard. Surrounded by a dramatic “moat,” the home features floor-to-ceiling windows with sweeping, unobstructed views of Downtown Los Angeles, Catalina and the coastline of California. 1201 Laurel Way has a 2,200-square-foot private deck with a six-person Jacuzzi hot tub, a home theater with seating for 11 people, a 1,000-bottle wine room, all-glass six-car garage and a master suite fitted with a wet bar and a fireplace set in a white glass wall. The main outdoor entertainment area comes with an infinity pool and another Jacuzzi. There is also a guesthouse on the property with built-in kitchenette and gym. The asking price is US$ 42 million.

Bonds from Emerging Markets Are Underrated

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The interest rate reversal is a long time coming. The US Fed has pushed back a decision on a rate hike to December, citing the uncertain outlook for the global economy as reason, among others. At the same time the ECB president, Mario Draghi, has hinted at the fact that the ECB might expand its bond purchase programme considerably. This keeps the interest rates, both for government and for corporate bonds, at historically low levels. “In this environment it is difficult for many investors to achieve a satisfactory yield,” as Péter Varga, fund manager and specialist for emerging markets corporate bonds at Erste Asset Management, explains. “As alternative, we recommend investors to take a closer look at investment grade bonds from emerging markets issuers.”

Stimulus package in China and weak economy in Brazil

“We currently rate the situation of the emerging markets as mixed,” as Varga points out. The semi-annual figures of the corporate sector in the emerging markets were anything but convincing, but the stimulus package announced in China creates new opportunities. The government in Beijing announced that the equity portion for property purchases was to be cut. At the same time, a tax break will be granted for the purchase of a compact car. The situation in Brazil, on the other hand, remains difficult and diffuse in the foreseeable future. “We are critical of the country due to the political instability and the generally weaker economy,” as Varga explains. A careful selection of the right assets in the emerging markets is therefore key.

Erste Asset Management offers interested investors suitable access to this investment universe via its Espa Bond Emerging Markets Corporate IG fund, which was floated three years ago. The investment focus of this fund is on investment grade bonds from the emerging markets. The fund is eligible in accordance with the Austrian Insurance Supervisory Act and thus also interesting for a number of institutional clients. It is also hedged against currency fluctuations and commands a good rating.

“From our point of view there are numerous factors supporting an investment in investment grade emerging markets bonds,” as Varga points out. It is generally a fast growing, broadly diversified asset class with bonds from many well-known, internationally operating companies such as for example Alibaba from China, or Grupo Bimbo from Mexico. At the same time, the rising capital inflow ensures liquidity. Overall this asset class is dominated by real-economy companies. Industrials account for 57.1%, whereas for European investment grade bonds, this percentage is only 47.1%. “Another reason to invest, from our point of view, is also the structurally favourable, i.e. lower, valuation of emerging markets corporate bonds vis-à-vis the industrialised countries. In recent years, the spreads on investment grade companies from the emerging markets have been a stable 2-2.5% above those of corporate bonds from developed countries in spite of negative market phases,” highlights Varga.

Operating since 2007, Erste Asset Management has years of experience in the asset class of emerging markets corporate bonds. The company successfully combines local know-how with global strategies. Over the years, Erste Asset Management has recorded a constant inflow of assets and has received numerous national and international awards.

Has the Fed’s Hike Made Emerging Markets More Appealing?

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The Fed appeared to meet expectations with its long awaited rate hike last week, coupled with a forecast that was widely viewed as gradual and fairly predictable, if not outright dovish. While all asset classes had waited for the Fed to move, emerging markets had arguably been one of the most affected, given that the average currency in the asset class has fallen roughly 40% since May 2013, the beginning of the infamous “taper tantrum” that marked the beginning of rate hike speculation.

It is difficult to argue that the Fed has been the sole factor in emerging market debt weakness. China hard landing fears, plummeting commodity prices, Brazilian political disarray, Russian policy concerns and general weakening of growth across all regions created a near perfect-storm for emerging market debt investors. However, a more predictable and less fraught path going forward for the Fed should help steady investor nerves and risk appetite. If developed market bond yields remain very low – as seems likely with a very slow hiking path, set out with some confidence – emerging market dollar yields may remain one of the few places to look for meaningful income generation for years to come.

The Fed move comes at a time when emerging market dollar debt seems particularly attractive. Yields in the primary sovereign dollar index are at highs not seen since 2010, when Treasury yields were much higher than today. Yield spreads over Treasuries for investment grade sovereign debt are just under 300 basis points, and remain at elevated levels that were last seen consistently during the European crisis of 2011. High yield sovereign debt currently has a yield to maturity of 8.5%.

The divergence between developed market monetary policies has driven the dollar nearly 20% higher on a trade-weighted basis since July 2014. Emerging market currencies have fallen in lock step. With the European Central Bank now charting a path towards a steady dose of quantitative easing as growth in Europe stabilizes, Fed predictability should help curb that dollar appreciation. Emerging market currencies should then likely steady at attractive levels, boosting sentiment towards the asset class. Even a modest virtuous cycle led by these factors could make emerging markets one of the strongest global fixed income performers next year, given today’s generous yield levels.

Llorente & Cuenca Acquires 70% of EDF Communications

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Greenberg Traurig, advised Llorente & Cuenca, the leading reputation, communication and public affairs management consultancy in Spain, Portugal and Latin America, in the 70 percent acquisition of EDF Communications, a Miami-based strategic communications and public affairs firm.

Under the terms of the agreement, EDF Communications will be integrated into Llorente & Cuenca’s Miami operations. EDF Communications, which has been operating in the U.S. and Latin America for more than a decade, has a presence in Mexico, Colombia, Argentina, Chile, Brazil and Costa Rica. The employees of EDF Communications in Latin America will also be integrated into the Llorente & Cuenca operations in their respective countries. Following the acquisition, Erich de la Fuente, founder of EDF Communications, will become partner and CEO of Llorente & Cuenca’s Miami-based U.S. operations.

This is the fourth acquisition Llorente & Cuenca has finalized since last June, when it announced the incorporation of French private equity firm MBO with the intention of implementing an expansion plan to grow its presence in existing markets. This acquisition is the first of its kind in the U.S. and further strengthens Llorente & Cuenca’s position in the U.S. and Latin American markets, creating added-value for clients who will benefit from a significantly enhanced service portfolio, and a network of 11 offices across the Latin American region.

The Greenberg Traurig team was led by Antonio Peña, a shareholder in the firm’s Latin American and Iberian Practice and the Miami Corporate and Securities Practice. He represents a significant number of Spanish companies investing in the United States and Latin America.

Europe Will Have Climate Refuges As Well as War and Economic Ones

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2050. A huge dam seals off the Inn Valley at Kufstein. Behind it, a reservoir containing millions of cubic metres of green, shimmery water. The Emperor Maximilian Dam is the crown jewel of a number of dams that line Greater Tyrol from Kufstein to the Andreas Hofer Dam at Rovereto and that are one of the pillars of prosperity in Europe in what has been the wealthiest country for years.

Tyrol was able to benefit more than others from the climate change, which had caused the temperature to rise by 4% annually. The biggest dam system in the world dwarfs the Three Gorges Dam in China and comes with one enormous upside on top: the water does not just pass through the dam, but it is recycled by a sophisticated system of pump accumulators. It is used whenever power is needed – and, in particular, paid for – in the big metropolitan areas of the hot lowlands outside the borders of Tyrol. Tyrol, with its third dimension, i.e. altitude, was practically destined to become the battery of Europe.

The numerous dams and the climate change made the second source of prosperity possible in the country: prime property. A large number of exquisite lakeside properties that allow filled purses to enjoy the pleasant temperatures in higher altitudes and to escape the heat of the lowlands. No surprise that many millionaires who used to frequent places like Monte Carlo or the palm islands of the nouveau-riches in the UAE love their life in Tyrol.

What sounds like the fifth and yet unpublished part of Felix Mitterer’s “Piefke Saga”* (i. e. an Austrian soap opera about Tyrol) is the extrapolation of two current developments: global warming and the way we deal with it. The climate change is now taken as scientific fact. Even optimists expect the earth to warm by at least two centigrade in the coming years.

This development will come with massive repercussions on us and our lifestyle. There will not only be winners, but also losers as described above. The development will not care about state or cultural borders, and it will probably also shift some of them. One day we will have climate refugees along with war and economic refugees at the borders of Europe and Austria.

From my point of view it is important to realise that we have to be prepared to compromise. Wind parks are not always pretty. Alternative forms of energy do not only have to be generated but also distributed, which requires new power lines.

This will on the one hand entail many, also economic, opportunities, which we at Erste Asset Management want to seize in our sustainable funds. On the other hand this also means that we will have to change. In Giuseppe Tomasi di Lampedusa’s famous book “The Leopard” the main protagonist comments on the political revolution that has Italy in its grip: “If we want everything to stay as it is, everything has to change.” I think that climate change will teach us a similar lesson, no matter how we handle it.

Column by Gerold Permoser, Chief investment Officer and Chief Sustainable Officer of Erste Asset Management

Employee Advisors Outnumber Owners, But Compensation Remains Unchanged at Advisory Firms

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Today’s independent advisory firms are no longer solely driven by the talent of their founders and investment teams. Instead, they are growing enterprises focused on the talents of employees across multiple roles and disciplines, according to the 2015 InvestmentNews Compensation & Staffing Study, sponsored by Pershing. The study found that firms achieving the highest levels of performance are putting the attraction of top talent, motivation of employees and implementation of well-thought out plans near the top of their list of priorities.

According to the report, industry growth is changing the nature of firms. Advisor ownership used to define independence; however, today employee advisors now outnumber owner-advisors. This change amplifies the importance of developing career tracks, a workplace culture, nurturing talent and determining competitive positioning. As much as growth has created opportunity and brought a wave of hires, it does not seem to have affected compensation for most positions in the last two years. Salaries for employee advisors and other key positions remain virtually unchanged. The cumulative effect of growth has doubled the size of the typical firm in the industry over the last five years. The year 2014 brought 13.5% growth in revenues.

“Recruiting top talent and delivering exceptional services to your client is critical to success in today’s advisory landscape,” says Ben Harrison, managing director and head of business development and relationship management at Pershing Advisor Solutions. “Whether your firm is a super ensemble or a small RIA, implementing a business management strategy is fundamental. We are personally invested in helping our clients succeed and have uncovered key insights in this study to help them better engage investors, attract top talent and run their business more effectively.”

The report identified the following trends as drivers of the business management strategies of the most successful firms:

Growth and Prosperity

Firms of different sizes significantly differ in their approach to finding new clients. The largest firms turn to branding and marketing, while smaller firms rely on referrals and networking.

Employee advisors outnumber owners: Owners are no longer the only advisors that manage client relationships. Super ensembles have been building their employee teams for many years, and smaller ensembles and enterprise ensembles are now also following suit.

Size becoming a decisive advantage: Super ensembles and large firms hold the advantage in their ability to attract top talent and the largest client relationships. Because of their size, they have a more prominent presence in the marketplace and are typically located in the largest markets where there is also a proliferation of wealthy potential clients.

Salaries remain unchanged: While there has been a new wave of advisory hires, it has not translated into salary growth. Instead, the growth in compensation has been in the form of incentives rather than salaries.

Building a growth engine: Many advisors are focusing on the clients who will offer the most value and pay for the firm’s service offering.

AllianzGI Expands Europe Distribution Team

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Allianz GlobalInvestors (AllianzGI) announced the appointment of Irshaad Ahmad as head of institutional Europe. Based in London, he will assume business development and client servicing responsibility for all AllianzGI’s institutional clients in Europe and spearhead the company’s strategy to further develop its institutional business in key regional markets.

Ahmad, who will report to Tobias C. Pross, head of EMEA, will also chair the European Institutional Executive Committee and become a member of the European Executive Committee.

Commenting on the appointment, Tobias C. Pross said: “I am delighted that, in Irshaad, we have found a senior executive who combines extensive experience with a strong entrepreneurial mindset. I am certain that Irshaad will help further strengthen our institutional business across our key markets, driving best practice in client-centric advisory and service delivery throughout Europe.”

He joins AllianzGI from AXA Investment Managers, where he was head of UK & Nordics and CEO UK since 2011, leading retail and institutional sales as well as client service teams.

Crowdfunding & Marketplace Lending Forum for Real Estate

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IMN announces its Crowdfunding & Marketplace Lending Forum for Real Estate on March 10-11, at the Marriott New York Downtown, NY. Following reports that real estate crowdfunding is set to jump to $2.5 Billion by the end of 2015, IMN’s conference aims to be a platform to learn more and capitalize on this exciting investing model.

With over 400 participants attending our inaugural Crowdfunding Forum, including 275+ Owners/Developers and RIAs/Financial Advisors, the organization returns to New York this year with brand new content featuring Owners and Developers speaking to other Owners and Developers as well as the excitement and energy of a new regulatory environment. The event program will focus on Regulation A+ after the recent passing of the rules as well as new sessions that look into fee structures and learning from failed platforms from those with the valuable lessons. The conference incorporates Shark Tanks and small group meetings in the form of luncheon asset class roundtables, to allow participants to discuss the issues most pertinent to their business.

A sample of property owners, financial advisors and RIAs already signed up to speak include: Arsenal Real Estate, ARX Urban Capital, Balboa Real Estate Group, Bazer Investment Group, Berkley Aqisitions, Brollklyn Standard Properties, Bruckal Group, Cedar Grove Capital, Envisage Properties, Hoboken Brownstone Company, Kaufman Jacobs, MHP Funds, Monroe capital, Pinpoint Equity Group, Real Wealth Network, Seven Two Partners, Synergy group, Vision Wise Capital.

For more information, you may follow this link.

Barclays is Selling its Risk Analytics and Index Unit to Bloomberg

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Last Wednesday British bank Barclays agreed to sell its indexing business built around former Lehman Brothers benchmarks to US based Bloomberg for close to 781 million US dollars (520 million pounds).

The move comes as Chief Executive Officer Jes Staley speeds up non-core disposals and will give Barclays a 480 million-pound gain.

Barclays Risk Analytics and Index Solutions Ltd. (BRAIS) incorporates Barclays’ benchmark indices, including the Barclays Aggregate family of indices. The transaction includes the sale of relevant intellectual property in relation to the POINT portfolio analytics tool. Barclays has agreed to continue to operate POINT for 18 months post completion in order to help clients transition to other providers, including Bloomberg’s PORT product. Barclays will retain its quantitative investment strategy index business, with calculation and maintenance of its strategy indices outsourced to Bloomberg.

Completion is subject to various conditions, including anti-trust approval, and is expected to occur by mid-2016.

Jes Staley, Barclays Group CEO, said: “We are pleased to partner closely with Bloomberg upon completion of the transaction, including maintaining a co-branding arrangement on the benchmark indices for an initial term of five years. This transaction is further evidence of the good work we are doing in managing down our Non-Core assets so that shareholders can feel the full benefit of ownership of Barclays’ well-performing Core businesses.”

Back in 2008 Barclays combined their indices offering with those of Lehman Brothers Holdings Inc.’s North American unit to create BRAIS.

Time to Favor TIPS?

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A sluggish economy, strong dollar and falling energy prices have pushed inflation down to historically low levels. However, as Russ Koesterich, CFA, BlackRock Global Chief Investment Strategist, explains, expectations for future inflation may be too complacent.

Over the past several years, investor perceptions of the U.S. economy have changed dramatically. Following several years of consistently disappointing economic growth, few now expect a return to the post-World War II growth norm.

Amid the sluggish economic recovery, investor expectations for future inflation have also moderated, but perhaps by too much. Indeed, current expectations for future inflation may be too complacent, creating a potential opportunity in long-dated Treasury Inflation-Protected Securities (TIPS).

Shifting the Focus to TIPS

Three years ago, according to data accessible via Bloomberg, investors were expecting inflation of roughly 2.5 percent over the course of the next decade. Even as recently as last summer, expectations for long-term inflation were around 2.25 percent. However, since the summer, inflation expectations have collapsed. As of December 1, 10-year TIPS breakevens, a measure of investor expectations for future inflation, were below 1.6 percent. While this is nominally above the multi-year low reached in late September, it’s well below the long-term 10-year breakeven average of around 2 percent.

The collapse in investor inflation expectations coincides with a similar recalibration among consumers. In addition to measuring consumer confidence, the University of Michigan publishes several surveys measuring consumer expectations for inflation. The most recent survey suggests that 1-year inflation expectations are at 2.7 percent, down from 3 percent in March. The longer-term 5-year survey has inflation expectations at 2.6 percent, just above a multi-year low.

Why have both investors and consumers lowered their expectations for inflation so dramatically? While the sluggish recovery has certainly contributed, there’s some evidence that the precipitous drop in oil has played an outsized factor. Since peaking last summer, U.S. crude benchmark WTI has fallen by approximately 55 percent, according to Bloomberg.

As consumers and investors are constantly exposed to the price of a gallon of gasoline, itself a function of crude prices, the drop in oil may have disproportionately impacted perceptions of inflation. There’s some empirical evidence to support this. Since the third quarter of 2015, the drop in oil prices explains roughly 80 percent of the variation in 10-year inflation expectations, according to a BlackRock analysis using Bloomberg data.

Should oil prices continue to collapse, inflation may remain at today’s low levels or sink even further. However, there are a number of signs that that the recent drop in inflation expectations may be overdone.

Inflation Expectations Underrated?

First, U.S. inflation stripped of food and energy prices, which are inherently volatile, has been much more stable than the headline number. The core consumer price index (CPI), which excludes both food and energy prices, is currently running at 1.9 percent year over year, the highest level since June of 2014, according to data via Bloomberg.

Looking at this from an economic perspective also seems to indicate that today’s inflation expectations may be unrealistically low. “My preferred leading economic indicator—the Chicago Fed National Activity Index (CFNAI)—suggests that current estimates for U.S. inflation appear roughly 40 basis points too low,” says Koesterich.

“While I don’t envision a significant surge in inflation anytime soon, I do expect to see some stabilization in inflation and inflation expectations given factors including declining slack in the labor market. In addition, U.S. inflation should firm as the one-off impact of a stronger dollar and lower energy prices start to fade from CPI calculations. In the meantime, today’s TIPS prices tell me that investors’ inflation expectations may be too sanguine. As such, in bond portfolios, I prefer TIPS to plain-vanilla Treasuries. An allocation to TIPS could help hedge the risk that inflation may be on the rise,” he concludes.

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This material is for educational purposes only and does not constitute investment advice nor an offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator in any Latin American and Iberian country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein.