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Despite the Federal Reserve’s aggressive interest-rate hikes in 2022, inflation still remains at multi-decade highs. It’s shown some signs of easing, but inflation has historically tended to fall in fits and starts and may continue to be a top-of-mind concern for investors for some time. 

Fortunately, investors can prepare their portfolios regardless of where inflation heads from here. We reviewed asset-class performance during periods of rising and falling inflation since the 1970s to identify opportunities and help investors navigate inflation—whether it’s rising or falling.

Asset Class Returns During Periods of Rising Inflation Since 1970

As of 12/31/22. Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment. See last page for representative index definitions. For illustrative purposes only. Note: Historical data unavailable for some asset classes. Inflation is measured by Core CPI, or the consumer price index, defined by the Bureau of Labor Statistics as a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services excluding food and energy prices. TIPS, Treasury-inflation protected securities, are Treasury bonds that are adjusted to eliminate the effects of inflation on interest and principal payments, as measured by CPI. Source: Hartford Funds, 1/23. 

Investors looking to mitigate the impacts of rising inflation may want to consider: 

  • Commodities — Commodities and inflation are generally positively correlated: Commodity prices tend to rise when inflation rises. When demand for goods increases faster than they can be produced, commodity producers can pass price increases along to consumers. 
  • Equities — Both large-value and small-cap equities have historically benefited during periods of high inflation. Within equities, dividend-paying stocks have the potential to provide yields that outpace inflation. Dividend-paying stocks have outperformed non-dividend paying stocks during all periods of rising inflation since the 1970s, as shown in the chart below. 

Dividend-Paying Stocks Have Generally Outperformed Non-Dividend Payers During Periods of Rising Inflation

As of 12/31/22. Past performance does not guarantee future results.  For dividend-paying stocks, dividends are not guaranteed and may decrease without notice. Ned Davis Research conducted a study in which it divided companies into two groups based on whether they paid a dividend during the previous 12 months (dividend-paying stocks) or not (non-dividend paying stocks). Source: Ned Davis Research, 1/23.

  • International equities — From a sector standpoint, international equities also tend to be more cyclically oriented than the US, which can position them well during periods of strong demand.

  • TIPs — Treasury inflation-protected securities can adjust their principal to account for rising or falling inflation (which also adjusts their interest payments accordingly), while providing a high-quality fixed-income investment that’s backed by the US government. (Individual TIPS are backed by the US government but funds that invest in TIPS are not.)

What About When Inflation Is High, but Falling?

Since inflation has tempered somewhat but is still high in relative terms, we also evaluated time periods in which inflation was above 3% but falling. In these cases, the trends were:  

  • Value style outperformed growth style — Above-trend inflationary periods have historically been positive for value stocks because they’re more sensitive to the level of inflation rather than the rate of change in inflation. 
  • International equities outperformed domestic equities — As is the case during periods of rising inflation, international equities tend to be more cyclically oriented, which has tended to help them combat inflation. 
  • Smaller companies outperformed larger ones — Similar to value stocks, small-cap stocks have historically performed well in above-trend inflationary environments because they’re tied more to the overall inflation rate rather than its rate of change. 

Asset Class Returns During Periods of High-but-Falling Inflation Since 1970

As of 12/31/22. Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment. For illustrative purposes only. Note: Historical data unavailable for some asset classes. High-but-falling CPI periods defined as periods of 3% or higher CPI but trending downward with an average decline of 1% or more. Source: Hartford Funds, 1/23.

What You Can Do Now

Regardless of where inflation moves next, the most prudent course of action is to review strategies that can help hedge portfolios against its damaging effects.


Hartford Funds That May Help Hedge Inflation

  Ticker   Ticker
Domestic Equities Class I  ETF Commodities
Class I
Hartford Dividend and Growth Fund  HDGIX   Hartford Schroders Commodity Strategy ETF   HCOM
Hartford Equity Income Fund HQIIX        
Hartford Multifactor Small Cap ETF   ROSC   Multistrategy
Hartford Multifactor US Equity ETF   ROUS Hartford Real Asset Fund 
International Equities     TIPs
Hartford Multifactor Developed-Markets (ex-US) ETF   RODM Hartford Inflation Plus Fund  HIPIX  

ETFs are not mutual funds. Unlike traditional open-ended mutual funds, ETF shares are bought and sold in the secondary market through a stockbroker. ETFs trade on major stock exchanges and their prices will fluctuate throughout the day. Both ETFs and mutual funds are subject to risk and volatility.

Not all products listed are available at all broker-dealers. Not all products listed are available at all broker-dealers. View the full list of Hartford Funds.

Talk to your financial professional to make sure your portfolio is prepared for inflation. 

Commodities are represented by the Bloomberg Commodity Total Return Index, an index composed of futures contracts and reflects the returns on a fully collateralized investment in the BCOM. This combines the returns of the BCOM with the returns on cash collateral invested in 13 week (3 Month) US Treasury Bills. High Yield is represented by the Bloomberg US Corporate High Yield Total Return Index, an unmanaged broad-based market-value-weighted index that tracks the total-return performance of non-investment grade, fixed-rate, publicly placed, dollar-denominated and nonconvertible debt registered with the Securities and Exchange Commission. International is represented by the MSCI World ex USA Index, a free float-adjusted market-capitalization index that captures large- and mid-cap representation across developed-markets countries excluding the United States. MSCI performance is shown net of dividend withholding tax. Investment-Grade (IG) Corporates are represented by the Bloomberg US Corporate Index, a market-weighted index of investment-grade corporate fixed-rate debt issues with maturities of one year or more. Treasuries are represented by the Bloomberg US Treasury Index, an unmanaged index of prices of US Treasury bonds with maturities of one to 30 years. US Large-Cap Value is represented by the top 30% of the top 1000 US stocks based on a value score that equally weights multiple valuation metrics to arrive at an aggregated valuation metric. Valuation metrics include: Earnings Yield, Operating Cash Flow/Enterprise Value (EV), EBITDA (earnings before interest, taxes, depreciation, and amortization)/EV, Sales/EV, Dividend Yield, and Equity Yield. US Large-Cap Growth is represented by the top 30% of the top 1000 US Stocks based on 50% year-over-year total earnings growth and 50% year-over-year revenue growth. US Small Cap is represented by the US universe of small-cap stocks as identified by US stocks between the 85th and 98th percentiles of market cap. TIPS are represented by the Bloomberg US Treasury Inflation-Linked Bond Index (Series L), which measures the performance of the US Treasury Inflation-Protected Securities (TIPS) market. Federal Reserve holdings of US TIPS are not index eligible and are excluded from the face amount outstanding of each bond in the index. 

“Bloomberg®” and any Bloomberg Index are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by Hartford Funds. Bloomberg is not affiliated with Hartford Funds, and Bloomberg does not approve, endorse, review, or recommend any Hartford Funds product. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Hartford Fund products. 

Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent. 

Important Risks: Investing involves risk, including the possible loss of principal.• Small-cap securities can have greater risks, including liquidity risk, and volatility than large-cap securities. • Foreign investments may be more volatile and less liquid than U.S. investments and are subject to the risk of currency fluctuations and adverse political, economic and regulatory developments. These risks may be greater, and include additional risks, for investments in emerging markets.  • For dividend-paying stocks, dividends are not guaranteed and may decrease without notice. • Investments in the commodities market may increase liquidity risk, volatility, and risk of loss if adverse developments occur. • Different investment styles may go in and out of favor, which may cause a fund to underperform the broader stock market. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • Investments in high-yield (“junk”) bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. • Obligations of US Government agencies are supported by varying degrees of credit but are generally not backed by the full faith and credit of the US Government. • The value of inflation-protected securities (IPS) generally fluctuates with changes in real interest rates, and the market for IPS may be less developed or liquid, and more volatile, than other securities markets.  

The views expressed here are those of the authors. They should not be construed as investment advice. This material and/or its contents are current as of the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Hartford Funds. 

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About The Authors
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Senior Investment Director, Hartford Funds
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Head of Client PM Group, Hartford Funds
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Client Portfolio Analyst
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Client Portfolio Analyst

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