Michael Zeuner: 00:00
Hi everyone. This is Michael Zeuner, one of the managing partners at WE Family Offices. Thanks for listening to the wealth enterprise briefing. I’m joined today by Sam Sudame, our global head of macro, and we’re going to pick it up from where we left off last time, which was a deeper discussion into fundamental factors and how that is driving the global capital market environment, and Sam’s perspective that we’re from, where he sees things, the fundamentals look good and positive as we head into 2026 So Sam, I want to pick up on that again and put sentiment to the side and focus on fundamentals. What are the implications, broadly speaking, for an investors portfolio, from an asset allocation perspective of where, where we see the world as we enter 26?
Sam Sudame: 00:55
So overall, we think that the economy will be better girded because of all of the stimulus, fiscal, monetary stimulus, and the powerful capex spending. And as a result, we think in 2026 we will see an economic environment of inflationary growth. So what does that mean for asset allocation? Broadly speaking, it’s a positive environment for risk assets. We’re also seeing stimulus abroad, with European stimulus and defense and infrastructure, Japan is embarking on new stimulus in 2026 so that means the global economic environment, I think, is very positive and over and is conducive to overseas risk assets as well.
Michael Zeuner: 01:45
Okay. Now, one of the things that you said, which I want to sort of come back and zero in on, is you said, we’re in an environment of inflationary growth, not growth. Inflationary growth. Tell me a little bit more about why you put the qualifier of inflationary in there ahead of growth, sure.
Sam Sudame: 02:01
So I think the consensus market expectation in 2026 is that inflation will actually come down. This is where, I think, where the view is a little bit out of consensus. We think that inflation need more stubborn than the market thinks. We’re seeing that in consumer expectations for this year look actually quite high. We’re looking at something. It’s kind of an esoteric concept called trim, mean. Inflation has been very stubborn. What you’re seeing is still the lagging impacts of tariffs. What you’re also seeing is when an economy is doing pretty well and there’s more stimulus being added, there’s not enough slack in the economy, so prices tend to rise as a result. I think that you will have one that is inflationary in nature, or at least stubborn in inflation. And the combination of inflation and growth is how we look at the different asset classes.
Michael Zeuner: 03:00
So how might you position a portfolio differently in the context of inflationary growth versus growth? What are the big implications to an investor that they need to be thinking about to the extent we’re in an inflationary growth environment?
Sam Sudame: 03:18
The very important impact is in fixed income. So for instance, if inflation is stubborn, it makes cash much more unattractive. Second is in core fixed income. Again, it reduces the real yield. If inflation rises second, it’s the implication of what could happen to fed monetary policy. If the Fed needs to fight inflation, it will raise interest rates. Well, the market will think the Fed is going to be raising interest rates. If that 10 year yield or five year yield starts to rise, that would negatively impact fixed income.
Michael Zeuner: 04:02
So as an investor, the implication being Be careful about having too much in cash, because you’re not going to get a real positive yield in an inflationary growth environment, but be careful about extending into too much interest rate risk in your fixed income portfolio and taking on a lot of duration, because there is always the possibility that either the market and or the Fed could drive rates up, which could be as detrimental to a fixed income portfolio, therefore sort of making sure to stay above cash but relatively modest on duration, risk becomes an important factor. And I I presume, say, I’m looking at different kinds of fixed income instruments that that perhaps one might not have had to look at in the past, whether it’s CLOs or or other kinds of structured fixed income investments, becomes even more important in an inflationary growth environment than perhaps in the past.
Sam Sudame: 05:03
So in a growth environment, credit is supported. So when companies have the cash flows to repay principal and interest, credit is well supported. In that environment, you would see asset backed securities supported. So in an inflationary growth environment, that would be more neutral, as opposed to more bond or government bonds, which would tend to be more kind of underweight a government bond an underweight cash in that type of inflationary growth environment.
Michael Zeuner: 05:34
Okay, so that’s the implication of inflationary growth for cash and fixed income. What about for more growth oriented asset classes where investors are taking on more risk in the hope of returning a much more positive, real return?
Sam Sudame: 05:50
Inflationary growth tends to be positive for equities, and the reason is, equities are a nominal asset, which means, if they have growth and helps earnings, inflation will also help nominal earnings. So overall, as long as inflation doesn’t get out of hand, and the Fed becomes very restrictive on policy, by large, inflationary growth is a quite a positive environment for equities.
Michael Zeuner: 06:17
Okay, and then a place that I think perhaps investors may not have been paying as much attention to in the past as perhaps they need to now – would be in more inflation sensitive assets, like real assets. Talk to us a little bit about where that fits in the portfolio.
Sam Sudame: 06:35
So in an environment of inflationary growth, that’s one of the best environments for commodities and real assets, because there’s a lot of growth for commodities, there’s demand increase for real estate, inflation, for instance, in real estate and infrastructure can be passed through. There are usually inflation escalators, for instance, in infrastructure. So those real assets tend to do relatively very well in an environment of inflationary growth, where I would almost recommend being overweight commodities and infrastructure in such an environment.
Michael Zeuner: 07:14
Okay, so let’s just summarize. So as we talked about last time, positive macro, you know, fundamentals – okay, we’re watching and keeping an eye on things that might change that, but for now, we don’t see that and and then two is this construct of inflationary growth versus just a growth cycle has some important implications for investors. It’s not about necessarily taking risk off the table, but it is about perhaps taking different kinds of risks than they may have in the past, both in their fixed income portfolios, their equity portfolios and real asset portfolios. Okay, well, thank you, Sam for that insight, and we’ll look forward to talking as the year plays out.
Sam Sudame: 08:02
Alright, thank you Michael.
Disclosure: 08:06
The wealth enterprise briefing is for informational and educational purposes only and does not consider the specific investment objectives, financial situation or particular needs of any listener. The information in the briefing is not a recommendation of any security and should not be relied upon as investment legal or tax advice.
