Total Portfolio Approach (TPA) deep dive: Inflation risk

Understanding how TPA provides a more effect way to build inflation resilience.

Inflation impacts every part of a portfolio—so why manage it in isolation? This video examines how a Total Portfolio Approach (TPA) provides a more effective way to build inflation resilience by embedding it across the entire investment strategy. Rather than relying on a single solution, it considers how different assets work together across changing environments. By taking a holistic view, investors can better balance protection, growth, and flexibility. Discover how applying a total portfolio lens to inflation can help strengthen outcomes and prepare portfolios for whatever lies ahead.

Transcript for video

TOM HEPWORTH: Inflation risk is one of the most important challenges investors face because it directly affects the real value of portfolios and the spending power they are designed to support. It's also a risk that cuts across every asset class, rather than sitting neatly in one place. And this is where a Total Portfolio Approach can be particularly effective, as it provides a holistic way to think about inflation risk and how to manage it across the portfolio as a whole, rather than through a single isolated solution.

A key difficulty with inflation is that it doesn't behave consistently. In periods of high inflation, preserving purchasing power becomes critical. An asset such as infrastructure, real estate, and inflation-linked bonds tend to play an important role due to their explicit or structural inflation linkage. In other environments, such as disinflation or slower growth, more traditional defensive assets, including nominal bonds or equities with pricing power can regain importance.

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The important point here is that no single asset class provides reliable inflation protection across all regimes. Under a Total Portfolio Approach, inflation protection is therefore not treated as an afterthought or a standalone allocation. Instead, it's embedded as a core consideration throughout the entire portfolio construction process.

And this creates a framework that adapts dynamically, helping ensure exposures are balanced, reducing vulnerability to shifts in the inflation regime with the ultimate goal of improving long-term outcomes. And crucially, this approach allows inflation resilience to be integrated across asset classes rather than treated as a silo. In practice, this can involve combining longer-term structural solutions, such as real assets and inflation-linked bonds, with more targeted tools. For example, commodity exposure or inflation overlays during periods of heightened risk.

It also ensures alignment with broader portfolio objectives so that inflation protection does not come at the expense of return targets, liquidity needs, or capital efficiency. The trade off involves a nuance, liquidity, complexity, cost, and implementation all matter. A Total Portfolio Approach helps weigh these factors holistically, embedding inflation resilience into the overall design rather than relying on an isolated fix.

A Total Portfolio Approach is often seen as something only large or highly resourced investors can use or as a complete alternative to traditional asset allocation. And in practice, that simply isn't the case. TPA is a way of thinking about the portfolio as a whole. And its principles can be applied to investors of any size. It doesn't require a full redesign of the investment framework or constant trading. Instead, TPA can be introduced gradually, sitting alongside existing approaches and strengthening them.

By focusing decisions on overall objectives, risk tolerance, and portfolio trade, even small steps towards a total portfolio mindset can lead to clearer governance and better aligned outcomes. For those willing to embrace the journey, even simply taking one step along the path towards a Total Portfolio Approach, the rewards can be significant. For those looking to discuss TPA further, please do get in contact with myself or my WTW colleagues. And we'd look forward to the discussion.

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Michael Vassilopoulos

Director, Investments

Sasha Loutcheva

Head of Portfolio Design

Michael Vassilopoulos

Director, Investments

Sasha Loutcheva

Head of Portfolio Design

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