QIC goes synthetic

Big Queensland institutional investor QIC has initiated a new investment strategy that it believes will protect it from inflationary spikes.

The strategy involves using synthetic securities to provide what it describes as a “more flexible and tailored approach” to mitigate the impact of inflation on investment portfolios.

QIC managing director of active management Susan Buckley said the new strategy had been formulated on the basis of recently having disproved previously held views on hedging against inflation.

“Many investors have previously believed that equities represent a hedge against inflation, yet recent research goes against this thinking,” she said. “The latest research actually shows that traditional assets such as bonds, equities and property are actually not correlated with inflation spikes over short to medium-term periods. Inflation swaps and commodities provide the best hedge against inflation spikes.”

Buckley said the traditional approach for hedging inflation risk was to use inflation-linked bonds, but there were some significant factors that impact on their effectiveness.

She said rather than using physical assets, QIC had implemented the strategy using synthetic securities.