1. Purpose And Regime Context
This article addresses portfolio construction for Quadrant C.
Low growth. Persistent inflation. Rising fiscal stress. Declining monetary credibility.
This is not a return-maximisation exercise.
It is about preserving purchasing power in a hostile macro regime.
Quadrant C – low real growth with structurally high inflation.
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2. Defining The Regime
Before discussing portfolios, the regime must be explicit.
Stagflation – weak or stagnant growth combined with persistent inflation.
Currency debasement – ongoing loss of purchasing power through monetary expansion.
Financial repression – policy tools that suppress real yields to manage sovereign debt.
Fiscal dominance – monetary policy subordinated to government financing needs.
These conditions now define most developed economies.
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3. Why Traditional Portfolios Fail In Quadrant C
The standard 60 40 portfolio is structurally mis-aligned with this regime.
Key failure modes:
Bonds lose real value under negative real yields.
Equities become liquidity-dependent rather than earnings-driven.
Valuations rest on policy support rather than cash flows.
Correlation between stocks and bonds rises during inflationary stress.
Financial assets become claims on a depreciating currency.
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4. The Deeper Structural Problem
This failure is not cyclical. It is structural.
Globalisation and financialisation are two sides of the same coin - developed economies outsourced production while retaining financial claims.
Foreign trade surpluses were recycled into financial assets.
Result: overinvestment in finance, chronic underinvestment in physical supply.
This imbalance becomes unstable when inflation re-enters the system.
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5. Design Principles For A Quadrant C Portfolio
Portfolio construction must follow regime logic.
Core principles:
Protect purchasing power, not nominal returns.
Avoid leverage and duration risk.
Prefer assets with inelastic supply.
Minimise exposure to discretionary policy support.
Accept volatility in exchange for real preservation.
This is defence first, upside second.
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6. Asset Class Implications
Applying those principles leads to clear preferences.
Favoured:
Physical commodities.
Energy and resource equities.
Precious metals.
Infrastructure with pricing power.
De-emphasised:
Long-duration bonds.
Growth equities reliant on low rates.
Financial assets dependent on liquidity expansion.
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7. Translating Strategy Into ETFs
This portfolio expresses these principles using low-cost, liquid ETFs.
This is:
Not a trading portfolio.
Not optimised for short-term benchmarks.
Designed for a multi-year stagflationary regime.
Expect volatility.
Expect underperformance during liquidity rallies.
Expect resilience when currency credibility weakens.
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8. Indicative ETF Portfolio Allocation
This is ready to copy and paste into Excel.
Asset Class,Allocation Percent,ETF Option 1,ETF Option 2
Gold (Physical, Unhedged),30,iShares Physical Gold (SGLN),Invesco Physical Gold (SGLD)
Broad Commodities,15,WisdomTree Enhanced Commodity (WCOA),Invesco Bloomberg Commodity UCITS ETF (CMOD)
Energy (Oil & Gas Focus),10,iShares Oil & Gas Producers UCITS ETF (IOGP),SPDR MSCI World Energy UCITS ETF (WNRG)
Industrial Metals,5,WisdomTree Industrial Metals (AIGI),Invesco Bloomberg Industrial Metals UCITS ETF (AIMT)
Resource & Value Equities (Global),10,iShares MSCI World Value Factor UCITS ETF (IWVL),SPDR MSCI World Value UCITS ETF (WVAL)
Infrastructure & Regulated Utilities,10,iShares Global Infrastructure UCITS ETF (INFR),SPDR Morningstar Multi-Asset Global Infrastructure UCITS ETF (GIIX)
Cash & T-Bills (Short-End Only),10,iShares USD Treasury Bond 0-1yr UCITS ETF (IB01),SPDR Bloomberg 1-3 Month T-Bill UCITS ETF
Short-Duration Sovereign Bonds,5,iShares Global Govt Bond Short Duration UCITS ETF (IGSB),Vanguard Global Short-Term Bond UCITS ETF (VSGS)
System Shock / Optionality Sleeve,5,iShares Gold Producers UCITS ETF (SPGP),WisdomTree Gold Miners UCITS ETF (GDMN)
This allocation emphasises:
Real assets.
Energy and materials.
Monetary hedges.
Reduced exposure to policy-distorted assets.
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9. Risks And What Would Change The Thesis
This framework would be challenged by:
Sustained disinflation without recession.
Restoration of positive real interest rates.
Fiscal consolidation without monetary accommodation.
A genuine productivity-led growth cycle (AI?).
Absent these, Quadrant C remains dominant.
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10. Conclusion
Quadrant C is hostile to conventional portfolios.
It rewards realism over optimism.
The objective is not to beat markets in nominal terms.
It is a strategy whose number one goal is to survive a regime of debasement with capital intact.
In such conditions, wealth preservation - in terms of purchasing power - is the goal... what you own matters more than how much it yields.
11. Next Steps
We currently have in place a strategy based on ETFs - 15 as above or here. How could we use technical indicators to exploit the current regime where gold is exhibiting a long period of mean reversion around trend?
We could pursue a dual strategy - part long term capital preservation, part tactical-technical based.
Try a σ-based gold accumulation strategy. I We would hold a certain percentage of our capital in ETFS for protection against the monetary expansion we expecting this regime, but have another smaller percentage for tactical use.
Run a trendline based on monthly closing price going back to 1971 and buy or sell when the price is more than one sigma off this trend.
Rebalancing (this is not market timing, it is) in this way by trimming strength andrebalancing) overweights during calm markets would create the cash buffer needed to react to expected future underweight signals.
References
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