PERSPECTIVE3-5 min to read

Overheating: a new source of concern

Are prices on the rise? We will be watching the data closely.



Caspar Rock
Chief Investment Officer

It has been a long time since investors have had to worry about overheating of the economic variety. In the decade that followed the financial crisis of 2008/9, economic growth was persistently sluggish and “animal spirits” generally subdued. We are in a very different place today, with governments, companies and consumers all looking to invest or spend. Investors are starting to worry that central banks may soon have to cool things down.

Recent portfolio changes have helped us in this new environment. In the fourth quarter of last year, we increased our exposure to more economically-sensitive areas of the market. This has worked well as these sectors continue to play catch-up. We increased this exposure more recently with the addition of a “deep value” fund with overweight positions in financials and energy – sectors which are finally enjoying a period of stronger performance after being out of favour for many years. Historical data suggests these sectors should continue to perform relatively well in a period of slightly higher inflation.

Sector performance can vary materially

MSCI World Index vs. selected global industry sectors, last five years


Source: Cazenove Capital, Refinitiv Eikon

While these purchases have changed the overall composition of our portfolios, we still have a slight bias towards “growth” sectors. This reflects our commitment to longer-term themes such as technology and healthcare, which we think will offer opportunities for years to come. Other themes that we continue to hold as core positions include infrastructure and energy transition, both of which should benefit from governments’ focus on “building back better” after the pandemic.

In multi-asset portfolios, we recently increased our weighting towards absolute return funds. These vehicles are designed to deliver less correlated returns with lower volatility. We think they have a particularly attractive opportunity set at the moment given the continued dispersion in valuations across sectors and markets.

We also maintain the “defensive ballast” in multi-asset portfolios. The threat from the pandemic has not gone – and could become more severe over the autumn and winter. Inflation, and the potential central bank response, could also be a trigger for renewed volatility. 

Based on our inflation view, we have been reducing our exposure to conventional US treasuries in favour of inflation-linked treasuries ("TIPS"). This should allow us to benefit from the safe haven characteristics of US government debt while offering inflation protection. We also continue to hold gold. Its traditional role as a hedge against inflation could mean it is in high demand in a period of sustained price rises.

Issued in the Channel Islands by Cazenove Capital which is part of the Schroders Group and is a trading name of Schroders (C.I.) Limited, licensed and regulated by the Guernsey Financial Services Commission for banking and investment business; and regulated by the Jersey Financial Services Commission. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.



Caspar Rock
Chief Investment Officer


Economic views
Global Market Perspective

Cazenove Capital is a trading name of Schroders (C.I.) Ltd which is licensed under the Banking Supervision (Bailiwick of Guernsey) Law 2020 and the Protection of Investors (Bailiwick of Guernsey) Law 2020, as amended in the conduct of banking and investment business. Registered address at Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 3UF, (No.24546) . Schroders (C.I.) Limited, Jersey Branch is regulated by the Jersey Financial Services Commission in the conduct of investment business. Registered address at 40 Esplanade, St. Helier, Jersey JE2 3QB, (No.31076).

The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.