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Several investment managers have recently introduced packaged solutions aimed at providing an inflation hedged holistic solution. “Everyone right now seems to be wildly concerned about inflation, given the debt issues in the United States,” said Eric Jacobson, director of fixed-income research at Morningstar.

Background:

Advisors and Institutional Clients, including Defined Contribution retirement plans are the target clients for a number of packaged solutions meant to provide a hedge against inflation. Investment News recently covered this in an insightful article, “Fund groups add inflation hedges“.

Key Themes Emerging in the Investment Management industry:

• The new version of inflation hedged products has to provide clients with a diversified mix of securities — including commodities, real estate investment trusts and Treasury inflation-protected securities.
• A bundled product offering is important for Defined Contribution retirement plans for two reasons:
  • single product strategies are not likely to be implemented correctly by plan participants
  • plan participants demand simplicity
• Institutional clients are increasingly calling on their investment manager to provide active management of a commodity mandate. However, it must be implemented in a fashion that integrates with other securities such as REITs, TIPs and Gold.

Will advisors who have the ability to create their own packaged funds and leverage passive ETFs really pitch these inflation hedge solutions?

I believe these products will resonate with plan participants and retail investors as long as they show strong performance in a hypothetical, model portfolio.