Investing defensively right now will leave you with nothing, asset manager warns

Key Points
  • Being defensive on investments comes with a cost, an asset manager has said
  • Inflation should still concern investors despite record low levels
Investors need to be mindful of inflation, CIO says

Remaining too cautious on your investments could leave your portfolio subject to the dangers of inflation, an investment manager has warned.

Even as both interest rates and inflation sit at record low levels in U.S. and European economies, Chris Wyllie, chief investment officer at Connor Broadley, told CNBC Thursday that remaining defensive on assets could be a bad move.

"At a time when interest rates remain extremely low – less than inflation – it's a reminder that being defensive, being cautious in markets comes with a cost," Wyllie said.

The world's biggest central banks are under constant pressure from investors to communicate their monetary policy path. But central banks are known to be vague when communicating their strategy.

Bank chiefs as well as senior economists have advised central banks to gradually start exiting the ultra-loose monetary policy environment.

Earlier this week, Deutsche Bank chief executive officer John Cryan called on the ECB to change course on providing cheap money, warning he sees price bubbles in stocks, bonds and property. Low interest rates add pressure on bank's margins thus making it difficult for banks to make profits.

Gone with the wind of inflation

Using an analogy, Wyllie referred to the film 'Gone with the Wind.'

"Gone with the Wind remains the highest grossing film of all time – but only if you adjust for inflation of course, because the film was released in December 1939."

He added: "To extend the analogy, many investors can find their portfolios gone with the wind of inflation if they don't invest."

Vivien Leigh as Scarlett O'Hara in 'Gone With the Wind.'
Clarence Sinclair Bull | John Kobal Foundation | Getty Images

U.S. core inflation was pushed down to 1.4 percent in July, measured on a 12-month basis. Meanwhile in the euro zone, inflation rose to 1.5 percent year-on-year in August. Both figures fall considerably short of the two central banks' targets of 2 percent.

The investment manager said investors were not "bereft" of buying opportunities, and recommended U.S. energy and banking stocks over government bonds.

"Within the U.S., there are two big sectors at the moment which stand out as still offering a value of opportunity. And that's the energy sector, and the banking sector," he said.

"The energy sector because of the oil price being subdued, and the banking sector because interest rates have been subdued, and because of regulation. And in both respects, the pressure may be coming off."

Energy stocks have fallen around 8 percent over the course of the last 12 months on the S&P 500 Index; financials on the other hand rose nearly 22 percent.

- CNBC's Spriha Srivastava contributed to this report