What does inflation mean for thematic investing?

Inflation was being termed as a transitionary phase as global economies reopened after a bout of lockdowns, but the sentiment now has changed and inflation is affecting goods and services. Comparing certain thematic investing avenues, Schroders talks about how inflation may benefit or negatively impact investor capital in certain investment themes.

Economists at the investment management firm are forecasting a global inflation of 7.2% for 2022, up from 3.4% last year, before moderating to 4.3% in 2023. Schroders looks at thematic investing in the context of the steep inflation curve, which is higher than global central bank targets.

“What’s important to remember is that the most powerful themes have a very long duration. A theme like energy transition, for example, is an investment opportunity for the next 30-40 years, and the same goes for other themes that are shaping the world around us.” David Docherty, Investment Director – Thematics, at Schroders.

The asset management company says that property and infrastructure investors are in for reaping profits as new constructions slows and increases value of existing structures.

Renewable energy on the other hand is feeling the pain of inflation as prospects of cashflow growth have decreased. Higher costs of food are already biting economies, and higher agricultural commodity prices will benefit farmers and investors in certain commodities.

“While the strongest themes are about global transformation, that doesn’t mean all the investment opportunities within each individual theme are simply plays on long-dated growth,” adds Docherty.

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