The major central banks are largely in agreement on the definition of price stability. As long as consumer prices do not rise by more than 2% year on year, the central banks can live with that. During the Corona pandemic, the specter of inflation took flight anyway: In the fall of 2020, prices in Switzerland and the euro zone actually fell. Meanwhile, inflation in the US was less than 1.5% (see chart). Two years later, the SNB, ECB and Fed can only dream of such values. On both sides of the Atlantic, prices are soaring. According to initial estimates, consumer prices in the euro zone could have risen by a double-digit percentage for the first time in September 2022. For Switzerland, the Federal Statistical Office reported an inflation rate of more than 3% for the fourth month in a row. In the U.S., the U.S. Bureau of Labor Statistics will publish September price data on October 13. Over the summer, inflation in the States had stubbornly held at more than 8%. All the more reason for investors to hope that the rigorous interest rate hikes will gradually take effect and inflationary pressure will ease.
Concerns that the Fed will continue to tighten the reins sharply still have a firm grip on the stock markets, together with an extremely tense geopolitical mix. The MSCI World Index fell by more than a quarter in the first three quarters of 2022. By contrast, the tracker certificate on the Swissquote Inflation Index is only down by a moderate 2%. The central idea behind this benchmark - to effectively counteract sustained inflation - has worked from the outset: Compared with the issue in February 2021, the tracker has increased in price by a good tenth, while the globally diversified MSCI World has fallen by around 13% in this period (see chart). This outperformance is made possible by a special composition. The experts at Swissquote use assets in the Inflation Index that are at best positively correlated with inflation. To realize this strategy, the index can invest in equities, exchange traded funds (ETFs), exchange traded commodities (ETCs) and cash components.
The focus is on commodities. Energy sources, in particular, have emerged as the key driver of the current surge in inflation. WTI crude oil was already included in the index's starting lineup. The methodology draws on other individual commodities. For example, the index is also positioned in the commodity segments of industrial metals and agricultural commodities, as well as a diversified commodity ETF. Gold and silver are not to be missed, although the strong U.S. dollar has recently overshadowed the precious metals' status as a hedge against inflation. With real estate, other real assets represent an important building block for the Swissquote Inflation Index. Here, the managers rely on the iShares Global REIT ETF, among others. The passive fund launched in summer 2014 currently contains 350 individual positions. One focus is on U.S. real estate. From the outset, the index has focused on inflation-protected bonds. The reason: Treasury Inflation-Protected Securities, or TIPS for short, are a direct way to protect the portfolio from strong inflation. The Schwab U.S. TIPS ETF, a classic and heavyweight from this ETF segment, is one of the components of the benchmark.
From the asset class equities, the Swissquote Inflation Index contains, among others, several stock exchange operators. The increasing hectic pace on the markets in phases of inflation and the associated increase in trading volumes should play into their hands. Wall Street also has a firm place in the selection. Both the US leading index S&P 500 and the technology barometer Nasdaq 100 are included via ETF. Although the Ukraine war, the interest rate turnaround and the worsening economic outlook have slowed down US equities recently, Wall Street could be one of the immediate beneficiaries if the situation eases and the Fed no longer acts quite so tightly. Conclusion: The Swissquote Inflation Index offers investors the opportunity to systematically and permanently defy the specter of inflation. In addition to the sophisticated methodology, the broad diversification and of course the outperformance achieved speak for this underlying. Leonteq's tracker certificate enables direct, cost-effective and flexible participation in the actively managed strategy.
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