Anchor Perspectives,The Value Observer|Sep 15, 2021
The Impact of Inflation: What factor types are better suited to withstand inflationary environments?
- We examined the performance of two portfolios – one constructed of high quality companies and the other of low quality companies – to determine how they behaved during periods of elevated inflation.
- We define elevated inflation as those periods where the U.S. CPI remained above 3% for a period of one year or longer .
- Using these parameters, we identified eight periods of elevated inflation within the past 50 years.
- During periods of elevated inflation, High Quality portfolios outperform Low Quality portfolios in six of eight periods:
- High Quality companies of robust profitability significantly outperformed their Low Quality counterparts during inflationary periods by an annual average of7%.
- Inflation has been on the rise in recent months, and we expect this trend to continue.
- Anchor Capital’s Quality Bias:
- Our fundamental investment process seeks to uncover high quality companies with defensive characteristics and identify these companies at reasonable valuations.
- We invest in companies that we consider to have strong management teams and governance practices who are incentivized on achieving long term success.
- Our intent is to partner with high quality, well-run companies and hold them in our portfolios for long periods of time.