Aug 14, 2026 · 46 min
Investors rethink diversification as inflation reshapes portfolios
Inside Schroders' inflation-beating 'sleep at night' portfolio
The traditional balance between equities and government bonds is under pressure, forcing investors to reconsider how portfolios manage inflation, rates and shocks.
- 1Higher structural inflation makes real returns harder to achieve without broader exposure to gold, commodities, credit and inflation-linked bonds.
- 2Government bonds may provide less equity diversification as fiscal spending, debt issuance and long-term yields reshape markets.
- 3Sebastian Mullins remains constructive on US technology while using currency exposure, options and yield-curve positions to manage portfolio risk.
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Sebastian Mullins explains why put options can protect a moderately bullish portfolio from geopolitical shocks without abandoning equity exposure.
The brief
Sebastian Mullins of Schroders frames the shift from ultra-low rates and abundant liquidity to a regime where inflation, fiscal policy and politics matter more.
His framework filters market noise through the economic cycle, liquidity and market conditions, while treating gold, commodities, credit and inflation-linked bonds as potential real-return diversifiers.
The central portfolio tension is that government bonds may no longer reliably offset equity losses as debt, issuance and inflation keep long-term yields under pressure.
Mullins stays constructive on global equities, especially US technology, but expects gains to broaden and remains cautious on Australian shares after their global-market lag.
The practical response combines moderate equity exposure with put options, foreign-currency exposure, gold and yield-curve steepeners designed to withstand geopolitical and monetary shocks.
What was said on this episode
30 statements · 17 positive · 8 negative · 3 mixed · 2 neutral
Investors should reduce risk when an economy approaches recession.
“If you're heading towards recession, de-risk essentially”
Listen at 3:26
Recovery favors high-yield and small-cap equities; slowdowns favor high-quality technology stocks.
“If you're into recovery, you want high yields, small caps, for example, If you're into a slowdown, you want high-quality tech names in your equity portfolio.”
Listen at 3:32
Investors must pay attention to political intervention and geopolitics.
“you do have to pay attention to it”
Listen at 8:53
Inflation is structurally higher than during the previous low-inflation regime.
“we think we're in a structurally higher inflation”
Listen at 11:10
Global inflation around 3–4% is generally favorable for equities.
“if we stay around 3 to 4 inflation, let's call it globally 3 to 4 inflation, that's pretty good for equities.”
Listen at 11:35
Inflation above roughly 3–4% erodes equity valuations.
“When you see inflation above that, then valuations start to erode.”
Listen at 11:46
Schroders’ GROW ETF returned double digits with volatility below 5 over three years.
“the multi-asset fund we run as an ETF, GROW, that's performed double digits over the last 3 years. Volatility hasn't gone above 5 over over those last 3 years.”
Listen at 14:00
Investors can pursue real returns without increasing their risk budget.
“there are ways around it without increasing the risk budget”
Listen at 14:43
Long-duration bonds will remain less effective as portfolio hedges over the next five years.
“long-duration bonds have proven to be less effective structurally over the last 5 years. And we expect that to continue for the next 5 years.”
Listen at 17:15
Technology equities can rebound after the positioning washout.
“we think the tech trade can rebound.”
Listen at 21:35
The equal-weight S&P 500 should outperform over six to twelve months.
“more medium-term, next 12 to 6— sorry, 6 to 12 months, we're actually more bullish on the equal-weight S&P.”
Listen at 22:21
The US economy remains strong and is likely to continue expanding.
“we're still very bullish on the economy”
Listen at 22:45
Investors should favor technology equities in the short term.
“short-term, we want to get in the tech trade, take that rally”
Listen at 23:50
Investors should broaden into economically sensitive US stocks medium term.
“More medium-term branching out to the rest of the US economics-related stocks”
Listen at 24:07
Australian equities have an unattractive short-term outlook.
“we're not that positive on Aussie equities in the short term.”
Listen at 25:29
Australian credit is preferable to Australian equities for short-term income.
“for income, I'd rather do that. So in the short term, ignoring Australian equities, liking Australian credit”
Listen at 27:03
US ten-year yields will rise as government spending increases.
“10-year yields, we're not bullish on the US because we do think they're going to spend more money and we'll see longer ends, longer part of the curve yields rise.”
Listen at 30:36
German and UK government bonds are currently preferred.
“Right now, prefer Germany and UK.”
Listen at 32:20
Yield-curve steepener positions remain attractive in selected markets.
“we still like having a steepener on in select markets.”
Listen at 32:45
Gold hedges portfolios against currency debasement.
“we like gold as the hedge for currency debasement”
Listen at 33:38
Gold miners provide leveraged exposure to gold prices.
“It's a levered play on that.”
Listen at 36:12
Gold hedges monetary debasement, while commodities hedge supply-shock inflation.
“Gold hedges for monetary debasement inflation. Commodities hedges for supply shock inflation.”
Listen at 37:41
Foreign-currency exposure generally reduces Australian investors’ portfolio risk.
“having foreign currency does reduce your risk as an Aussie investor.”
Listen at 40:36
Half of equity exposure should generally remain unhedged for optimal risk-return.
“half of your equity exposure should be unhedged and that'll help give you the best risk return.”
Listen at 41:20
The US dollar will continue weakening over the long term.
“Structurally, I think last year is probably the play. You'll see that continue to weaken.”
Listen at 42:49
The Australian dollar will be broadly unchanged but slightly higher in twelve months.
“Unchanged but slightly higher.”
Listen at 44:13
The US ten-year bond yield will be higher in twelve months.
“Higher. Higher.”
Listen at 44:45
The Nasdaq will be higher in twelve months.
“Higher.”
Listen at 44:49
The RBA cash rate will remain flat over the next year.
“So probably next year, flat.”
Listen at 45:07
The ASX 200 will rise but underperform the Nasdaq over twelve months.
“Higher, but not as high as NASDAQ.”
Listen at 45:41
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
Featuring
Sebastian Mullins
Schroders
United States
S&P 500Listen to the full episode and explore every guest, topic, and moment on PodLume.