"Many companies will have made up their own mind on inflation and indeed the Institute of Directors confirmed as much this week when it said that inflation is now ‘hardwired into routine business decisions.”
But he doesn’t expect central banks to change tack, even if the inflation outlook changes.
He said: “ Central banks have been raising rates despite the war in Ukraine and in the US Powell has already made it very clear that fighting inflation and stabilising prices will be prioritised, even if that means a hit to GDP growth.”
Despite his view that inflation and interest rates may not rise to the extent the market presently expects, Snowden is presently invested as if they will.
In normal market conditions, if interest rates rise by less than the market expects, one would expect short duration bonds to perform poorly and long duration bonds to perform well, but Snowden is, for now, investing in line with the market view by owning more short duration bonds.
Snowden added: “As fund managers, we are not paid to be right about economics, we are paid to make money for our clients.
"And the reality is there have been many fund managers who have lost their jobs because the market stayed wrong for a long time and they lost their clients' money.
"I would also say, there are technical reasons to stay short duration, mainly that as quantitative tightening happens, that would be bad for long duration bonds.”
Meanwhile, Klempster is investing on the basis that growth will continue to be robust, and interest rates will rise, and so has his portfolios tilted towards value type equities and with much reduced allocations to government bonds.
david.thorpe@ft.com
