Fund manager David Jane has been looking around the world to identify which countries are failing to keep inflation under control. He says governments have got to be strong in driving inflation out of the system and must not take their foot off the pedal in terms of wage inflation.
He believes that the UK and Asia have the biggest risks of weakness in the face of inflationary pressure, with long-dated bond yields particularly at risk.
According to Jane, picking overseas government bonds relative to UK gilts and focusing on short-dated rather than long-dated bonds has been a good decision so far.
In his view, the main issue is whether inflation expectations are fully priced in at the long-dated end of the market – an area that he cannot avoid for ever.
Jane says: “We are in a relatively volatile and fast moving environment and we are trying to keep ahead of it. As we are trying to protect people’s capital, I am not going to be beholden to any decision I make here and now. We are lucky to have low exposure to equities but at some point we will have to be in the long end of the yield curve.”