Building an Inflation Portfolio Using Asset Classes

Long commodities?

August 2021. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • An inflation-proxy portfolio can be created by combining various asset classes
  • Can be implemented efficiently via futures 
  • Would have included primarily currency pairs, not commodities


We recently explored using stocks to create an inflation-proxy portfolio that resulted in a collection of stocks with strong sector and factor biases. Specifically, the portfolio exhibited overweights in energy and financial stocks, perhaps as expected, as well as a long position in the value and short positions in the momentum and quality factors.

However, despite selecting stocks based on their correlation to inflation, this was not significantly higher than the correlation of the broad stock market to inflation (read Building an Inflation Portfolio Using Stocks).

Some investors like equity mutual fund managers are constrained to exclusively investing in stocks and are forced to make such bets, but most others are more flexible and can utilize the entire spectrum of asset classes, which should enable them to create a superior inflation portfolio.

In this research note, we will explore combining various asset classes to build an inflation portfolio.


We create a framework to select asset classes from a set of 59 indices that are highly correlated to the U.S. 10-Year breakeven inflation rate using daily data and a one-year lookback. Specifically, we select the top 10% of indices that were most highly correlated, which results in a concentrated portfolio of six securities. The set of indices comprises all available asset classes – equities, bonds, commodities, and currencies. 

Daily inflation data is only available since 2006, which unfortunately constraints our analysis to a period where inflation ranged between 0% and 3%, i.e. it does not include a phase of high inflation that typically worries investors.

We observe that the inflation portfolio broadly mirrored the trends of inflation. However, we should highlight that the inflation portfolio is not structured