Bonds an option?

Inflation linked bonds may be well suited investments for high inflationary environment.

Indications are that inflation is once again on the increase with the February consumer price index reaching 4.8% compared to January's 4,2%.

Further increases are expected later this year with the forthcoming April petrol and related expenses increase.

"This, combined with the volatile equity markets suggests that investors should certainly not expect another bull run as experienced at the end of last year," Robert Walton, Managing Director of Metropolitan Collective Investments said.

He said although the Rand managed to maintain its continued strength against the US dollar, it may be just a matter of time before it will buckle once again. He believes the current global geo-political situation and up-coming elections in America will continue to create uncertainties in USD land, but after the November elections, the dollar is expected to regain some of its lost territory.

"Taking this into account, there are few safe havens that are expected to outperform cash at this stage, but one of the more certain "bets" are inflation-linked bonds, which are linked to the consumer price index (CPI)."

According to Walton, since the first inflation-linked bond was launched in March 2000, investors have invested R31bn in the five government backed inflation linked bonds.

The major benefit to investors is that their investment returns keep up with inflation, he said. "The capital and interest payments are increased or decreased in line with inflation where in the case of normal "vanilla" government bonds the bonds pay interest at a predetermined fixed rate."

He pointed out that usually inflation-linked bonds and normal "vanilla" bonds are negatively correlated, being that when inflation decreases, long term interest rates go down and those invested in normal "vanilla" bonds make capital gains whilst inflation linked bonds incur capital losses.

However, when inflation is upward, interest rates go up and investors in normal "vanilla" bonds incur capital losses whilst inflation linked bonds make capital gains

Institutional investors buy inflation linked bonds in bulk and use these as underlying investments for their guaranteed investment products. Some also manage a flexible fixed interest inflation-linked bond portfolio to optimize the returns on cash, normal "vanilla" bonds and inflation linked bonds.

In the ever-changing inflationary environment, Walton believes investors should be well aware of the benefits of exposing some of their portfolio to inflation-linked products, as these will protect investors' assets against the negative impact of inflation whilst allowing the opportunity for capital gains and reasonable cash-enhanced after tax returns.

Indications are that inflation is once again on the increase with the February consumer price index reaching 4.8% compared to January's 4,2%.

Further increases are expected later this year with the forthcoming April petrol and related expenses increase.

"This, combined with the volatile equity markets suggests that investors should certainly not expect another bull run as experienced at the end of last year," Robert Walton, Managing Director of Metropolitan Collective Investments said.

He said although the Rand managed to maintain its continued strength against the US dollar, it may be just a matter of time before it will buckle once again. He believes the current global geo-political situation and up-coming elections in America will continue to create uncertainties in USD land, but after the November elections, the dollar is expected to regain some of its lost territory.

"Taking this into account, there are few safe havens that are expected to outperform cash at this stage, but one of the more certain "bets" are inflation-linked bonds, which are linked to the consumer price index (CPI)."

According to Walton, since the first inflation-linked bond was launched in March 2000, investors have invested R31bn in the five government backed inflation linked bonds.

The major benefit to investors is that their investment returns keep up with inflation, he said. "The capital and interest payments are increased or decreased in line with inflation where in the case of normal "vanilla" government bonds the bonds pay interest at a predetermined fixed rate."

He pointed out that usually inflation-linked bonds and normal "vanilla" bonds are negatively correlated, being that when inflation decreases, long term interest rates go down and those invested in normal "vanilla" bonds make capital gains whilst inflation linked bonds incur capital losses.

However, when inflation is upward, interest rates go up and investors in normal "vanilla" bonds incur capital losses whilst inflation linked bonds make capital gains

Institutional investors buy inflation linked bonds in bulk and use these as underlying investments for their guaranteed investment products. Some also manage a flexible fixed interest inflation-linked bond portfolio to optimize the returns on cash, normal "vanilla" bonds and inflation linked bonds.

In the ever-changing inflationary environment, Walton believes investors should be well aware of the benefits of exposing some of their portfolio to inflation-linked products, as these will protect investors' assets against the negative impact of inflation whilst allowing the opportunity for capital gains and reasonable cash-enhanced after tax returns.

Indications are that inflation is once again on the increase with the February consumer price index reaching 4.8% compared to January's 4,2%.

Further increases are expected later this year with the forthcoming April petrol and related expenses increase.

"This, combined with the volatile equity markets suggests that investors should certainly not expect another bull run as experienced at the end of last year," Robert Walton, Managing Director of Metropolitan Collective Investments said.

He said although the Rand managed to maintain its continued strength against the US dollar, it may be just a matter of time before it will buckle once again. He believes the current global geo-political situation and up-coming elections in America will continue to create uncertainties in USD land, but after the November elections, the dollar is expected to regain some of its lost territory.

"Taking this into account, there are few safe havens that are expected to outperform cash at this stage, but one of the more certain "bets" are inflation-linked bonds, which are linked to the consumer price index (CPI)."

According to Walton, since the first inflation-linked bond was launched in March 2000, investors have invested R31bn in the five government backed inflation linked bonds.

The major benefit to investors is that their investment returns keep up with inflation, he said. "The capital and interest payments are increased or decreased in line with inflation where in the case of normal "vanilla" government bonds the bonds pay interest at a predetermined fixed rate."

He pointed out that usually inflation-linked bonds and normal "vanilla" bonds are negatively correlated, being that when inflation decreases, long term interest rates go down and those invested in normal "vanilla" bonds make capital gains whilst inflation linked bonds incur capital losses.

However, when inflation is upward, interest rates go up and investors in normal "vanilla" bonds incur capital losses whilst inflation linked bonds make capital gains

Institutional investors buy inflation linked bonds in bulk and use these as underlying investments for their guaranteed investment products. Some also manage a flexible fixed interest inflation-linked bond portfolio to optimize the returns on cash, normal "vanilla" bonds and inflation linked bonds.

In the ever-changing inflationary environment, Walton believes investors should be well aware of the benefits of exposing some of their portfolio to inflation-linked products, as these will protect investors' assets against the negative impact of inflation whilst allowing the opportunity for capital gains and reasonable cash-enhanced after tax returns.

Indications are that inflation is once again on the increase with the February consumer price index reaching 4.8% compared to January's 4,2%.

Further increases are expected later this year with the forthcoming April petrol and related expenses increase.

"This, combined with the volatile equity markets suggests that investors should certainly not expect another bull run as experienced at the end of last year," Robert Walton, Managing Director of Metropolitan Collective Investments said.

He said although the Rand managed to maintain its continued strength against the US dollar, it may be just a matter of time before it will buckle once again. He believes the current global geo-political situation and up-coming elections in America will continue to create uncertainties in USD land, but after the November elections, the dollar is expected to regain some of its lost territory.

"Taking this into account, there are few safe havens that are expected to outperform cash at this stage, but one of the more certain "bets" are inflation-linked bonds, which are linked to the consumer price index (CPI)."

According to Walton, since the first inflation-linked bond was launched in March 2000, investors have invested R31bn in the five government backed inflation linked bonds.

The major benefit to investors is that their investment returns keep up with inflation, he said. "The capital and interest payments are increased or decreased in line with inflation where in the case of normal "vanilla" government bonds the bonds pay interest at a predetermined fixed rate."

He pointed out that usually inflation-linked bonds and normal "vanilla" bonds are negatively correlated, being that when inflation decreases, long term interest rates go down and those invested in normal "vanilla" bonds make capital gains whilst inflation linked bonds incur capital losses.

However, when inflation is upward, interest rates go up and investors in normal "vanilla" bonds incur capital losses whilst inflation linked bonds make capital gains

Institutional investors buy inflation linked bonds in bulk and use these as underlying investments for their guaranteed investment products. Some also manage a flexible fixed interest inflation-linked bond portfolio to optimize the returns on cash, normal "vanilla" bonds and inflation linked bonds.

In the ever-changing inflationary environment, Walton believes investors should be well aware of the benefits of exposing some of their portfolio to inflation-linked products, as these will protect investors' assets against the negative impact of inflation whilst allowing the opportunity for capital gains and reasonable cash-enhanced after tax returns.