The Impact of Inflation Hedge Assets on Portfolio Optimizations for US and Canadian Investors

The research is based on “Gold: Inflation Hedge and Long-Term Strategic Asset.” paper by Dempster and Artigas (2010). Authors used basic portfolio for the US investor, which includes Corporate Bonds, US Treasuries, Equity US and Equity Ex-US. By adding, alternatively, the four potential inflation-hedges, researchers showed Gold as the most appropriate Long-Term Strategic Asset. In our research, we constructed basic investment portfolio for US and Canadian investors. For each case, alternatively, four potential Inflation Hedges, which are Gold, S&P GSCI Index, REITs and TIPS, were added to the basic portfolio. The optimization results are based on the post-crisis period from 2009 to 2016. The final results for the US suggest that Gold should be considered as a strong long-term strategic asset. For the Canadian case, Gold, and S&P GSCI tend to be appropriate long-term strategic assets, which should be added to the basic portfolio. Canadian REITs get allocation under base case assumptions but sensitivity analysis indicates that the results are not robust.