Low-turnover, liquid portfolio specifically designed for increasing inflation.

Top Questions - BC Inflation Fund

What is the goal of BCIF? The goal of BCIF is to outperform US inflation (US CPI-U) over the medium to long term (3 to 6 years) with lower volatility than pure commodity investments by investing in liquid securities accessible to individual investors. The securities are specifically selected to benefit from increasing inflation and inflation expectations, and may be common stocks, ETFs/ETNs, and inflation-protected bonds.

Who should follow the reference portfolio? Investors concerned with the inflationary policies of both the Federal Reserve and the Federal Government.

What is in the BCIF portfolio? The reference portfolio consists of common stocks, ETFs/ETNs and inflation-protected bonds.

How are the securities selected? The securities are specifically selected to benefit from increasing inflation and inflation expectations. Some are stocks of companies that operate in businesses that will be "first in line" in an inflationary uptick. Some are stocks of businesses that, by their very nature, can aggressively pass on increased costs. Some are stocks of businesses or ETFs/ETNs that hold essential hard assets, and/or hold assets that are likely to attract investors during an increase in inflation. There are also inflation-protected bonds, which, unlike "regular" fixed-rate bonds, are indexed for inflation.

What does a client get? A client would get "front row seats" in the show. This includes complete portfolio information, initial theses and updates on the individual positions, exits and new trades, and overall risk monitoring. There is a monthly performance letter that discusses how the portfolio has done. Further, the BCIF manager has been doing independent inflation monitoring since early 2009 in an effort to gain a deeper view into the dynamics of the problem: these periodic write-ups are also a part of the package.

Who is the portfolio manager? The PM, Nick, is a former banker from Lehman/Columbia MBA. He is the author of the Barbarian Capital blog. More detailed information is available to clients.

More Questions - BC Inflation Fund

Why do you think we are going to see inflation, and not deflation? There are many reasons for this, and I urge all to explore those, but in summary: deficit spending, structural deficits, unfunded off-balance sheet obligations, quantitative easing, size of the on-balance sheet obligations, energy scarcity, and a few other reasons. Differences in opinions, including those regarding inflation, are essential to having markets.

Can't you just buy gold? Of course, though most people cannot handle the volatility of such portfolio. Further, an investor would be very exposed to idiosyncratic risks, including changes in the taxation of gold instruments, political risks like the 1930's confiscation, the expenses on the position (either ETF expenses or storage and insurance costs), and so on.

Do you use stops? Yes, an investor should always have at least mental/written stops, or a small stop order to signal that the position is headed in the wrong direction. As the recent "flash crash" showed, having a stop order for an entire position turn into a market order can be dangerous.

Is this value, growth, momentum, macro or something else? BCIF is neither of these: we are focusing on a variety of securities that we think will do well in inflation. Macro funds generally do "first iteration" investments, i.e. increasing inflation >> rising rates >> buy fixed. We would like to go beyond that. Rates, for example, are the most managed aspect of the financial markets, and sure things often aren't.

Why wouldn't a broad index fund do well? We have no crystal ball but we do think that (1) most businesses in an index fund would suffer, rather than gain, from increased inflation, and (2) most US management teams have neither the experience nor the preparation to deal with inflation substantially higher than what we have seen in the last 30 years. There are a few other reasons as well, such cost of capital in all of its forms and shifting demand picture.

Why the name "Barbarian Capital"? There are a few threads here. Rome had the capital, but the barbarians won. Rome fell in part through inflation (the constant devaluation of its currency) while the mercenary barbarians demanded only gold. Gold, a timeless inflation hedge, is called a barbarous relic by some. There is no other Barbarian Capital so the name was available when I started the blog. Since I am of neither Greek nor Roman descent, I am technically a barbarian. Finally, I like rugby and there is a rugby brand called Barbarian.