Timing is sometimes seen as everything in investing, but the reality is often far more nuanced. Investors attempt to anticipate market shifts, only to find themselves consistently behind the curve—especially when it comes to inflation. We believe firmly in the benefits of a strategic allocation to inflation protection precisely because inflation can arise unexpectedly.

Inflation's return, rising risks 

For much of the 2010s, the world enjoyed low inflation, steady growth, and relatively low default rates. This was driven by years of globalization, integrated supply chains, and accommodative immigration policies that kept prices of goods, services, and wages contained. However, the onset of the COVID-19 pandemic reminded investors that inflation can appear seemingly out of nowhere and have an immediate economic impact. A combination of supply chain disruptions, government shutdowns, aggressive fiscal stimulus, and delayed monetary policy tightening pushed inflation to levels not seen in decades. 

While inflation has since receded from its post-COVID-19 peak, it remains above the Federal Reserve's (Fed) longterm 2% target. As we move through 2025, the inflation landscape continues to evolve. Current headline inflation, as measured by the Consumer Price Index (CPI), came in below consensus expectations at 2.4% in May 2025. However, this apparent progress masks underlying pressures that could resurface quickly. Core CPI remains at 2.8% as new policy-driven factors emerge that could reignite inflation in ways the market has yet to fully price.

Navigating the current inflation landscape

Inflation doesn't always spring from a single source—a confluence of factors can put upward pressure on prices. Despite being widely anticipated, the Trump administration’s announcement of sweeping tariffs on April 2, 2025 still took markets by surprise in their size and approach. While opinions may differ regarding the tariffs’ benefits and efficacy, investors generally agree they will lead to higher consumer prices. Given the fluid legal environment, ongoing developments may either mitigate or amplify immediate inflationary pressures. This uncertainty underscores the importance of maintaining consistent exposure to inflation-protection strategies. 

Beyond trade policy, deglobalization trends have intensified in recent years. Corporations are increasingly prioritizing supply chain resilience over lowest-cost sourcing, a shift accelerated by COVID-19 disruptions, while stricter immigration policies may lead to a tighter labor market, putting upward pressure on wages. Pending fiscal policy, including sweeping tax cuts and increased defense spending, could also add to inflationary pressures. The Fed now faces a significant challenge as its dual mandate goals could be in tension, potentially requiring difficult trade-offs between controlling inflation and supporting economic growth. Recent Fed communications have underscored this challenge, with policymakers increasingly signaling that inflation risks may be taking precedence over employment concerns as the central bank approaches key policy decisions. This shifting Fed sentiment reflects the broader global uncertainty, as major economies grapple with divergent inflation trends and increasingly complex policy trade-offs.

Why market timing fails and the case for strategic exposure 

As with timing swings in the stock market, trying to time inflation is notoriously difficult—after all, it rarely gives advance warning. Consider that the sharp rise in prices in 2021 and 2022 caught even seasoned economists and policymakers off guard. By the time that inflation shows up in official data, markets often have already adjusted— leaving latecomers’ portfolios exposed. Buying inflation protection once it has already shown up in the data is akin to buying insurance on a house that is already on fire. Consistent protection is key. Exhibit 1 compares the sensitivity, or beta, of major asset classes to unexpected inflation. Traditional U.S. Treasurys exhibit negative inflation sensitivity, generally underperforming when inflation rises, while commodities show the highest beta, demonstrating their potential to actually benefit from inflation shocks.
 

SEI’s strategic approach to inflation management 

The SIIT Multi-Asset Real Return Fund was designed with a long-term, strategic approach in mind. It combines different sources of inflation sensitivity in a risk-balanced framework. 

Exhibit 2 shows how the Fund balances inflation sensitivity and risk-adjusted return. By allocating to sources of inflation protection with low correlations, the Fund helps to insulate against inflation scenarios, both anticipated and unexpected:

TIPS (50%): Provide direct inflation protection with government backing 
Commodities (20%): Deliver the highest inflation sensitivity in addition to diversification benefits 
Targeted equities (30%): Offer growth potential and inflation pass-through capability

 

Portfolio impacts and real-world performance 

Beyond theory, consistent exposure to inflation-protected strategies like SIIT Multi-Asset Real Return Fund has shown practical benefits when inflation has surprised markets. Exhibit 3 compares the inflation sensitivity of traditional portfolios (like a 60%/40% stock/bond mix) to those that include incremental allocations to SIIT MultiAsset Real Return Fund. The Fund has shown strong positive sensitivity to both the headline CPI and unexpected inflation, with correlation levels of 79% and 84%, respectively. The right side of the chart depicts how even modest allocations to the Fund can help improve portfolio-level inflation sensitivity.

 

The SIIT Multi-Asset Real Return Fund's performance in 2022, one of the most challenging inflationary periods in recent memory, provides a clear example of how the Fund has performed in moments of inflationary stress. The Fund’s 10.2% positive return in a period where most major asset classes struggled shows its potential for added inflation protection in a traditional portfolio. As illustrated in Exhibit 5, these data reinforce the practical utility of consistent inflation exposure when unexpected inflation materializes.

 

While past performance is no guarantee of future results, historical performance demonstrates how the Fund has successully navigated inflation uncertainty in the past. This uncertainty encompasses not just whether prices will rise, but also the speed, persistence, and breadth of any inflationary episode. Markets consistently struggle to price these variables correctly, creating opportunities for systematic inflation-protection strategies. Our message remains unchanged: Inflation protection should not be a tactical decision made after price pressures emerge, but a strategic allocation maintained consistently to help ensure portfolio resilience across unpredictable economic cycles. We believe this not because we know when inflation will strike, but because we know that it eventually will. The events of 2025 have only served to bolster the case for a strategic approach to inflation management. While investors may not be able to predict inflation, they can acknowledge its risks and incorporate durable tools to manage them.


Index definitions 

The Bloomberg 1-5 Year US TIPS Index measures the performance of inflation-protected public obligations of the U.S. Treasury that have a remaining maturity of one to five years. 

The Bloomberg Commodity Total Return Index is composed of futures contracts and reflects the returns on a fully collateralized investment in the Bloomberg Commodity Index (BCOM). This combines the returns of the BCOM with the returns on cash collateral invested in 13 week (3 Month) U.S. Treasury Bills. 

The Bloomberg Intermediate US Credit Index measures the investment grade, US dollar-denominated, fixed-rate, taxable corporate and government related bond markets.

The Bloomberg U.S. 10-Year Treasury Bellwether Total Return Index tracks the performance of on-the-run (most recently auctioned) U.S. Treasury notes with maturities of 10 years. 

The Bloomberg U.S. Aggregate Bond Index tracks the performance of U.S. securities in the Treasury, government-related, corporate, and securitized sectors. It includes securities that are of investment-grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $250 million. 

The ICE BofA U.S. High Yield Constrained Index is a market capitalization-weighted index which tracks the performance of U.S. dollar-denominated below-investment-grade (rated BB+ or lower by S&P Global Ratings and Fitch Ratings or Ba1 or lower by Moody’s Investors Service) corporate debt publicly issued in the U.S. domestic market. 

The J.P. Morgan EMBI Global Diversified Index tracks the performance of external debt instruments (including U.S. dollardenominated and other external-currency-denominated Brady bonds, loans, eurobonds, and local market instruments) in the emerging markets. 

The MSCI ACWI Commodity Producers Index captures the global opportunity set of commodity producers in the energy, metal and agricultural sectors. Constituents are selected from the equity universe of MSCI All-Country World Index (ACWI), the parent index, which tracks the performance of mid- and large-cap securities across developed- and emerging-markets countries. 

The MSCI ACWI ex USA Index tracks the performance of both developed- and emerging-market countries, excluding the United States. 

The S&P 500 Index is a market-weighted index that tracks the performance of the 500 largest publicly traded U.S. companies and is considered representative of the broad U.S. stock market.

The S&P USA REIT Total Return Index tracks the performance of publicly traded real estate investment trusts domiciled in the U.S.



















Important information

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only. 

For those SEI Funds which employ the ‘manager of managers’ structure, SEI Investments Management Corporation (SIMC) has ultimate responsibility for the investment performance of the Funds due to its responsibility to oversee the sub-advisers and recommend their hiring, termination and replacement. 

SEI Investments Management Corporation (SIMC) is the adviser to the SEI funds, which are distributed by SEI Investments Distribution Co (SIDCo). SIMC and SIDCo are wholly owned subsidiaries of SEI Investments Company. Neither SEI nor its subsidiaries is affiliated with your financial advisor. 

Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. 

There are risks involved with investing including loss of principal. There is no assurance that the objectives of any strategy or fund will be achieved or will be successful. No investment strategy, including diversification, can protect against market risk or loss. 

The Fund uses investment techniques with risks that are different from the risks ordinarily associated with fixed income and equity investments. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Smaller companies and narrowly focused investments typically exhibit higher volatility. Investments in commodity-linked securities may be more volatile and less liquid than direct investments in the underlying commodities themselves. Commodity-related equity returns can also be affected by the issuer's financial structure or the performance of unrelated businesses. The primary risk of derivative instruments is that changes in the market value of securities held by the Fund and of the derivative instruments relating to those securities may not be proportionate. Derivatives and swaps are also subject to illiquidity and counterparty risk. Bonds and bond funds will decrease in value as interest rates rise. High yield securities may be more volatile and be subject to greater levels of credit or default risk. TIPS can provide investors a hedge against inflation, as the inflation adjustment feature helps preserve the purchasing power of the investment. Because of this inflation adjustment feature, inflation protected bonds typically have lower yields than conventional fixed rate bonds and will likely decline in price during periods of deflation, which could result in losses. REIT investments are subject to changes in economic conditions, credit risk and interest rate fluctuations. 

Commodity-related equity returns can also be affected by the issuer's financial structure or the performance of unrelated businesses. The Fund's use of futures contracts, forward contracts, options and swaps is subject to market risk, leverage risk, correlation risk and liquidity risk. With short sales, you risk paying more for a security than you received from its sale. Short sales losses are potentially unlimited and the expense involved with the shorting strategy may negatively impact the performance of the fund. 

To determine if the Fund is an appropriate investment for you, carefully consider the investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Funds’ summary and full prospectuses, which may be obtained by calling 1-800-DIAL-SEI. Read it carefully before investing.