Written by Anna German
Updated over a week ago

Rev. Date May 30, 2019
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We believe the Local Inflation factor is difficult to generalize across currencies since inflation can be an inherently local phenomenon (e.g., driven by monetary supply, economic production, trade policy, and myriad other factors). Our Local Inflation factor, therefore, attempts to capture the cost of hedging a fixed-income portfolio against local currency inflation. We believe this cost can be appropriately calculated where deep and liquid markets of inflation-linked bonds exist and the values fluctuate with realized local currency inflation.

Both the United States and the UK markets have a deep market of inflation-linked bonds with decades of historical data, allowing us to build daily returns to the cost of hedging local inflation risk. We may extend the Local Inflation factor to new currency regions as local inflation-linked sovereign bond markets grow and sufficient historical data becomes available.

This document highlights certain aspects of this feature. As an overview, it does not discuss all material facts or assumptions. Please see Important Disclosure and Disclaimer Information.