Jack Fischer
US Product Lead, FICC
Key takeaways:
- International inflation linked securities (ILS) are re-emerging as a compelling portfolio building block for US investors. With global real yields near decade highs and compressed breakevens, ILS are once again offering attractive inflation adjusted entry points.
- Historically, non-US fixed income has been viewed as a source of added volatility and implementation complexity for US-domiciled portfolios. Today’s backdrop is meaningfully different. Elevated yields, top-heavy equity valuations, and tighter credit spreads have prompted investors to reassess fixed income allocations. At the same time, divergent central bank policy paths, tariff related macro risks, USD volatility, and rising debt levels have brought domestic concentration risk back into focus.
- The FTSE Russell International Inflation Linked Securities Select Index (SILSI) brings together developed and emerging market ILS in a single, diversified exposure. This index design, current risk profile, and macro dynamics position SILSI to be well-suited for a regime in which policy divergence and price-level uncertainty are likely to remain defining features rather than temporary anomalies.
What does our research mean for investors?
Strategically
- International ILS should be considered as a core international sector, providing non-USD diversification and inflation-protection, not a niche satellite
- Supports frameworks such as 60/20/20 (equities / nominal fixed income / inflation protection)
Tactically
- Current environment offers a rare entry point:
- High real yields
- Modest inflation expectations
- Elevated nominal income
- Relative value over nominals with lower hurdle rate and inflation-protection amid global uncertainty
- Relative value over credit in the backdrop of tight credit spreads and higher nominal yields
Portfolio Construction
- Reduces over concentration in USD assets and exposure to inflation-protected securities
