| Asset Class | Type | Weight | Representative ETFs | Rationale | |
|---|---|---|---|---|---|
| Defensive Plays | |||||
| Precious Metals | DEF | 16% |
GLDIAUSLVGDX | Gold is the quintessential stagflation asset — thrives when real rates are negative and fiat confidence erodes. 1970s analog strongly favors max overweight. Silver adds industrial inflation exposure. | |
| Managed Futures | DEF | 12% |
DBMFCTAKMLM | Stagflation produces strong, persistent trends in commodities, rates, and FX — exactly the regime CTAs exploit best. 2022 analog: CTAs surged during the inflation/rate shock. | |
| Alternatives | DEF | 8% |
PDBCQAIMNARPAR | Real assets — infrastructure, commodities, real estate with pricing power — are the textbook stagflation playbook. Revenues move with prices, providing a natural inflation hedge. | |
| Anti-Beta | DEF | 7% |
BTALSPLVUSMV | Quality and Cash Return are the top-performing styles in stagflation per BofA research. Long low-beta / short high-beta directly captures this quality premium as Value outperforms Growth. | |
| MSCI ex-US | DEF | 7% |
VXUSEFAVEUIXUS | Slight trim — global growth slowing hurts EM demand. However, commodity-exporting EMs and a weaker USD prevent a larger cut. Tilt toward LatAm/Middle East commodity exporters within the sleeve. | |
| Currency Safe Havens | DEF | 7% |
FXFFXYUDN | USD weakens further if Fed credibility erodes — the core stagflation risk. CHF and JPY benefit from flight-to-quality as “Triple Red” scenarios (stocks, bonds, dollar all falling) increase. | |
| Yield Curve Steepeners | DEF | 5% |
STPUUSTP | Steepening thesis strengthens in stagflation — front end falls if Fed is forced to cut despite inflation, while long end rises on de-anchored inflation expectations and term premium. | |
| Treasuries / TIPS | DEF | 3% |
TIPSCHPVTIP | Nominal bonds fail as a hedge when inflation is the driver — they fall alongside equities. Shift entirely to TIPS (inflation-linked). Wellington flags TIPS as undervalued relative to other real assets. | |
| Inverse ETFs | DEF | 3% |
SHPSQRWM | Stagflation is unambiguously negative for equities — growth slows while input costs rise, crushing margins. A larger short-equity hedge is warranted. MSCI models ~11% portfolio loss under stagflation. | |
| Offensive Plays | |||||
| Sector Rotation | OFF | 10% |
XLEXLVXLUITA | Trim total equity but shift hard toward energy, utilities, and healthcare — sectors with pricing power and inelastic demand. Exit cyclical industrials, which suffer from slowing orders. | |
| Event-Driven Momentum | OFF | 6% |
MTUMMNAMFUSARKX | Event catalysts become less predictable when macro regime dominates all price action. Reduce but don’t eliminate — Momentum factor historically still works in stagflation per BofA research. | |
| Growth | OFF | 4% |
QQQVUGIGVCIBR | The biggest offensive casualty. Growth stocks rely on low discount rates and future earnings — stagflation destroys both. Value decisively outperforms Growth in every historical stagflation episode. | |
| Short Volatility | OFF | 2% |
SVXYSVOL | Selling vol into a stagflationary regime is picking up pennies in front of a steamroller. Realized vol will likely exceed implied. Minimal exposure only; consider eliminating entirely if oil shock persists. | |