On Tuesday the Office for National Statistics said August’s Consumer Prices Index (CPI) measure of iflation came in at 4.5%, up from 4.4% a month earlier.
Inflation has now been well above the Bank of England’s (BoE) 2% target rate for more than 18 months and by the end of the year it is expected to peak at 5% or more.
In such circumstances the temptation for investors to alter portfolios might start to increase, but there are a couple of reasons a knee-jerk reaction should not be made.
Firstly, higher inflation is seen by most to be a temporary ail, imported through higher commodity prices, which will pull back towards the end of 2012, beginning of 2013.
This is chiefly why the BoE has chosen not to rise interest rates in response to higher prices, because it thinks the threat of economic stagnation is a greater one.
So, for portfolios with a medium to longer-term view, higher inflation should not be given undue attention.
Secondly, and this is McBreen’s main point, those with portfolios invested in active funds should expect the managers to be addressing and hedging any effect higher inflation has on their performance.
"A big part of fund research, selection and asset allocation is about picking fund managers and fund houses that have the depth of experience and ability to manage their portfolios on a day-to-day basis.
"We would expect them to be taking inflationary pressures into account, in terms of where they are invested and the underlying assets they hold."
A few choice funds recommended by McBreen for their long-term performance and active management stance are the Ecclesiastical Higher Income fund, managed by Rob Hepworth, the CF Ruffer Total Return fund, managed by Steve Russell and David Ballance and the CF Miton Special Situations portfolio, run by Martin Gray.
McBreen, concludes: "If they are not taking inflation into consideration then they are not doing what they say on the tin."
