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Global Yield – A Stellar Inflation Hedge
February 21, 2018

One of the primary sources of asset returns is a differential in the rate of change (ROC) of the Producer Price Index (PPI) minus the Consumer Price Index (CPI). The 12-month ROC in PPI-CPI in 2016 was only -0.2%, which was a dramatic rise over the -3.4% recorded in 2015 when the PPI declined -2.7% and the CPI rose only 0.7%. Since 2016, the PPI has soared to 3.9% with the CPI at 2.7% with PPI-CPI 1.3% as total returns for the Dow Jones Global Yield Index (Global Yield) has outperformed the Reuters/Jefferies Commodities Index (CRB) and the Barclays U.S. Aggregate Bond Index (U.S. bonds).

Investors are forward looking. They anticipated a higher inflation trend in 2016 and beyond by favoring inflation hedges such as Global Yield and the CRB over U.S. bonds to fuel total returns of 3.1% for global yield and 0.6% for CRB with U.S. bonds losing -1.2% since 2016 (Figure 1).

Figure 1. PPI Greater Then CPI – Inflation Rises – Dec 2015 to Feb 16, 2018

Highlights - (Figures 1 and 2 end Feb 16, 2018)

  • Since Dec 2015, global yield has a higher total return than two popular inflation hedges; namely commodities and global stocks at 144.9% (global yield) versus -41.7% (commodities) and 22.7% (global stocks). U.S. bonds returned 6.5%.
  • U.S. bonds bested inflation hedges when CPI plunged in 2008-2009. They have underperformed as CPI has climbed since the end of 2015 (Figure 2).

Figure 2. CPI and Global Yield Performance – Jan 2006 to Feb 16, 2018

DISCLOSURE: This report does not provide tailored investment advice. It was prepared without regard for specific circumstances and objectives. The securities shown may not be suitable for all investors. Arrow Insights recommends that investors independently evaluate particular investments and strategies. The appropriateness of an investment or strategy will depend on investor circumstances and objectives.

The contents are not an offer to buy or sell any security or to participate in any trading strategy. Arrow Insights and its affiliates or its employees not involved may have investments in securities or derivatives of securities of companies mentioned in this report, and may trade them in ways different from those discussed in this report.

Arrow Insights and its affiliate companies conduct business related to securities covered in its research reports, which may include market making and specialized trading, risk arbitrage and other proprietary trading, fund management, and investment services. Arrow Insights makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or information in this report change apart from when we intend to discontinue research coverage of a subject company.

Past performance is not a guide to future performance. Any estimates of future performance are based on assumptions that may not be realized.



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