Well, everything (except real estate) has been getting a lot more expensive and it looks like it’s not going to get any better. Consumer prices increased by 1.1% month over month in June. This was a lot higher than the consensus forecast and it’s the biggest monthly rise since Hurricane Katrina. The annual inflation rate jumped to a 17 year high of 5%.



So what does this mean for you and your portfolio? For discussion purposes let me highlight some of the techniques used by universities to hedge against inflation.

Often in managing their endowments, universities construct portfolios that include several hedges against inflation. To begin with, Treasury Inflation Protected Securities (TIPS) is an allocation that universities often use. These are bonds that typically go up when the consumer prices go up. David Swensen, the former head of the Yale Endowment, believes TIPS are an important component to a portfolio. Universities often allocate to commodities, precious metals and natural resources as well. On a sad note, usually real estate is a good inflation hedge, but unfortunately the deleveraging of the credit markets will likely prevent an appreciation in real estate in the near term. Important Disclosure

Tags: Greg, Asset Class, Universities