KNOWLEDGE CENTER

Knowledge Center Archive

Jun
1
2011

U.S. Equities: Few Repeat Winners/Losers When Inflation Rises

By SEI Investment Management Unit

In spite of media-stoked fears of rising inflation, SEI does not view inflation as a near-term threat. For U.S. equities, recent periods of rising inflation have not resulted in clear-cut winners and losers. While some industries have appeared consistently in the top or bottom ten, the sector impact of inflation is not straightforward. Once each sector’s index weight and volatility have been accounted for, there are only a few that appear more frequently than we would expect in a purely random process.

Among the clearest indications from the data: the Energy sector as a whole is not highly sensitive to inflation, but energy-related industries are consistent winners; the Consumer Discretionary industry appears to be highly sensitive to (and negatively impacted by) inflation, although discretionary industries have sometimes performed well; and industries in the Financial sector, while not unusually sensitive to inflation, tend to be negatively impacted. The Industrials and Materials sectors appear somewhat more often than expected, implying sensitivity to inflation, but they have tended to be very small components of the index, and whether they appeared in the top or bottom ten appears to have been something of a coin flip.

SEI’s portfolios are generally underweight to Financials and Materials and overweight to Technology. Our small-cap funds are overweight to Energy (specifically natural gas-related stocks) and our large-cap funds are underweight to Energy, particularly oil-related industries.

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