In July last year the European Central Bank, headed by Christine Lagarde, embarked on a new monetary policy course. Instead of striving for an inflation rate of "below but close to 2%", the central bank is now targeting exactly 2%. While this may at first glance appear to be only a marginal change on the previous policy, the new plan now allows inflation to exceed the target value "moderately" even for a while without having to lay a hand on the interest-rate tiller. Although this may be positive for equity markets,a high level of inflation is counterproductive for consumers because it causes money to lose its purchasing power.
To counteract ongoing devaluation effectively, Swissquote launched the Inflation Index at the start of this year. The barometer follows a very broad-based approach. The components in question are assets which are associated positively with rising prices. This is particularly the case for precious metals, which have always been considered solid as a rock in times of crisis. Real estate, too, represents a solid hedge for those wanting to keep an unavoidable loss of purchasing power in check as inflation increases. The prices of raw materials also generally correlate positively with price hikes. Last but not least, inflation-proofed US government bonds likewise offer investment opportunities for exorcising the spectre of inflation. According to the experts at Swissquote, inflation-linked bonds such as Treasury Inflation-Protected Securities, or TIPS for short, are one of the most direct ways of protecting a portfolio from the consequences of surging prices. The volatility asset class also serves as an effective instrument for hedging risk, performing particularly well in the early stages of rising inflation.
The examples show that investors are not exposed to high inflation for better or for worse, but can actually take steps against it. With that in mind, the Swissquote Inflation Index offers a promising mix of equities, funds, exchange-traded funds (ETFs) and even bonds. This very wide range of underlyings makes for a broadly diversified investment. Only securities which fulfil certain trading criteria come into consideration. The sophisticated investment process also utilises the know-how of the Swissquote experts as well as quantitative requirements such as mean value variance for optimisation of the portfolio. To ensure the composition always stays fresh, the individual components are subjected to quarterly review and adapted where necessary. Should it be necessary to trade outside the defined checks as a result of a sudden change in the news situation, for instance, Swissquote is entitled to perform a quantitative optimisation or rebalancing at any time.
There are 18 positions in the Swissquote Inflation Index at present, the performance of which is certainly impressive. Since the Leonteq tracker was launched in February this year, it has grown by more than 26%, putting it ahead even of the MSCI World index. Raw materials as an asset class continue to have a decisive influence on the price movement. As it was at the start, the iShares Diversified Commodity ETF is still the heavyweight today, making up more than 23%. The passive fund has had a good run. The two US stock exchanges S&P 500 and Nasdaq 100 are also playing their part in increasing the barometer's price. All in all, the participation product is an appropriate way of protecting against high inflation through a diversified exposure to tangible and intangible assets.
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