Lewis Jackson: Hello. We're on the sidelines of the Morningstar Advisor Conference. I'm here with Simon Doyle, Chief Investment Officer at Schroders.

Now, Simon, you were just on stage talking about inflation risk. What's your take on where we are at inflation currently? Has it peaked? And how can investors position their portfolios for higher prices?

Simon Doyle: Yeah, I'll say, there is a lot in there. I mean, I guess, the first point I'd make is, we're dealing with high inflation for the first time in several decades, probably longer if you look at the U.S. And what that's starting to mean, I think, is that investors are needing to kind of deal with rising interest rates and volatility being created in markets because inflation is high, but because there's a lot of uncertainty about where it actually might end up.

So, has it peaked it? It may have peaked. But I think when you sort of unpick what's driving inflation, there's still, I think, a lot of uncertainty about how high it will stay and where it will end up, and as a consequence, what central banks are going to need to do to respond to that. So, I think, the one thing we can say with certainty is inflation uncertainty has significantly increased, and that's going to impact asset prices and markets and policy, I think, for a number of months, if not the next year or so.

Jackson: When we think about that inflation uncertainty you talked about, let's think about a portfolio. How should investors who perhaps started investing a decade ago in a totally different era, how should they be repositioning or thinking about their portfolios now, asset classes given this uncertainty?

Doyle: Well, I think, the first thing I'd say is that we shouldn't completely unravel long-term strategies. Now, long-term diversified portfolios are there to accommodate changing environments. So, I think, we need to sort of in a way stick the course. But, I guess, what we're now starting to see happen in markets is, valuations are actually improving. Because investors are now starting to price for a higher interest rate environment means I've got to be more selective about the companies, the sectors, the industries that will perform well, and actually, I don't want to be in those that aren't making any money, profit. Let's take the speculative ends of the market have all seen pricing unravel. And so, we're now starting to see actually opportunities emerging. So, I think, investors at the moment, I think, should be patient, not be afraid of being more defensive than they'd otherwise like to be, hold cash, maybe start to increase exposure to government bonds, because yields are now starting to rise, so they're more attractive than they were, be cautious on equity markets. But I think over the next sort of, three, six, nine months, we're going to see some pretty good opportunities emerge, and I think investors who are well prepared will be able to take advantage of that.

Jackson: Okay. So, for now, more cash, more bonds. Let's think, sort of, three, six, nine months ahead. What are you looking for? What are the signs, or signals, the indicators that you'd like to see before you start thinking about putting that cash to work?

Doyle: Well, I think, at the moment, there's a lot of focus on, okay, what do rising interest rates mean, what does this withdrawal of stimulus, of liquidity actually mean for economies and for asset markets. And we've got the war in the Ukraine. We've got record-high energy prices. And there's a growing risk, we think, that we will see a recession. Or we'll certainly see markets pricing a recession or thinking very seriously about that prospect over the next, sort of, three, six, nine months. And I guess, our base case is that markets will at least price some sort of recession by the end of the year. I think once that's priced, that's when I think would be a really good entry point for investors, because a lot of the excess will be cleared, pessimism will be embedded in pricing, and I think that's when we'd be really looking to start to take advantage of that volatility.

Jackson: So, once the certainty around whether there's going to be a recession or not actually sort of firms up in markets?

Doyle: Well, I mean, that's certainly one way it could play out is that markets just start – go to the end game, which is, look, if oil stays where it is, if policy tightens, we could end up in a recession. Markets will price that. The other might well be that actually inflation does come back. The war in the Ukraine stops, energy prices come back down, central banks need to do a lot less because inflation is kind of taking care of itself a bit. That would be a more moderate sort of scenario, and that would be probably one where we'd be looking to reinvest, probably not from the same entry points, but nonetheless with more certainty about what the outlook will be. So, at the moment, I think it's just really – be cautious as we kind of navigate what are largely unknowable, sort of, events, given we're dealing with President Putin, we're dealing with, sort of, energy markets, we're dealing with that sort of uncertainty. But I think patience will be rewarded as some of that uncertainty clears.