The Impact of Inflation

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[1].
  • We define elevated inflation as those periods where the U.S. CPI remained above 3% for a period of one year or longer [2].
  • 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%.

 

Key Takeaways

  • 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.