Skip to content
    1. Overview
    2. Alternative Managers
    3. Consultants
    4. Corporations
    5. Family Offices
    6. Financial Advisors
    7. Financial Institutions
    8. Individuals & Families
    9. Insurance Companies
    10. Investment Managers
    11. Nonprofits
    12. Pension Funds
    13. Sovereign Entities
  1. Contact Us
  2. Search
  3. Client Login
Point of View · 09.13.22

3 Investment Trends Driving Portfolios in the Coming Years

What inflation, evolving central bank policies and threats to the green energy transition mean for investors

  • Portfolio Construction
  • Green Energy
  • Outlook
Executive Summary

Key Points

What this is

Investors manage their portfolios with long-term trends in mind. We examine three of those trends.

Why it matters

Investment trends related to inflation, central bank policy and the transition to clean energy may move markets over the next five years.

Where it's going

The worst of inflation probably has passed, the flood of monetary support likely has ended, and the slowdown in green energy looks to be temporary.

Potential Investing Threats and Opportunities


Over the next five years, we think investors must navigate economic, environmental, and political threats and opportunities to achieve their goals. As part of our Capital Market Assumptions Five-Year Outlook research, we identified those threats and opportunities through broad investment themes we believe will drive portfolio risk and return. We explore three of those themes.



Inflation Recalibration


No economic variable has changed more rapidly or created more volatility for investors over the past year than inflation, leading to . Just as investors thought inflation caused by pandemic-related supply disruptions would eventually settle down, the war in Ukraine triggered soaring commodity prices and forced investors to recalibrate their inflation assumptions. High inflation has sparked aggressive responses from central banks globally, increasing interest rates and volatility for stocks and bonds.


The war has primarily increased inflation through higher commodity prices, which may last for years. Before the war, Russia supplied 12% of global oil and 17% of global natural gas exports. Russia and Ukraine combined supplied 29% of global wheat and 19% of global corn exports.* This supply is at risk of disruption — both in the short term because of disruptions to planting, harvesting and exporting and the long term with potentially persistent Russian boycotts in reaction to economic sanctions by the U.S. and Europe. Russian boycotts will more likely influence the five-year horizon more, as it further entangles a global supply chain already snarled by the COVID-19 pandemic. The war has also notably widened the already-growing “West-East” divide, jump-starting a dramatic rebuilding of energy and technology self-sufficiency to lessen dependence on imports from political adversaries.

Exhibit 1: THE END OF AN ERA


The end of persistently low inflation means investors must recalibrate their invesment assumptions. 

Exhibit 1: The end of an era

Source: Northern Trust Asset Management, Bloomerg, Data from 3/31/2017 to 3/31/2022. All regions use headline Consumer Price Index as the inflation metric. Historical trends are not predictive of future results.

Automation and digitization still produce powerful disinflationary forces, but these forces need some time to overcome the shocks of stressed global supply chains, tight commodity markets and depressed labor supply. While inflation may take years to return to normal, we believe the worst has passed.

Monetary Drought


To fight inflation, central banks have decisively shifted their focus from supporting the pandemic-damaged global economy to fighting global inflation. This has created a Monetary Drought, in which central banks have increased interest rates, cutting to a trickle the previous flood of monetary support. Investors must adjust for higher interest rates when making investment decisions, such as valuing equities, and no longer depend on central banks to come to the rescue if the economy falters.



The “terminal” forecasts found in Exhibit 2 represent where we believe policy rates will be at the end of the five-year period, which can somewhat obscure our year-by-year policy expectations from start to end. For instance, we expect the Fed will end the five-year period at 2.5% but will push rates up over the next year before slowly coming down. The average (green bars) takes into account our forecasted trajectory (2.8% in the case of the Fed), providing a better indication of the average monetary policy environment expected over the five-year horizon.



Central bank policies and the resulting short-term rates are taking a more restrictive turn, and we think investors will need to adjust for higher interest rates in the coming years.

Exhibit 1: The end of an era

Source: Northern Trust Asset Management, Bloomerg, Data from 6/30/2022. Historical trends are not predictive of future results.

Green Transition Still a Go


Russia’s attack on Ukraine has brought forth a new political landscape alongside new security concerns, and the sits right in the middle of it all. Russia’s cutback of its energy supply to Europe has forced politicians to ensure that energy demand can be met — whatever the source.


We believe the approach to the green transition will diverge by region. Europe and Asia in the short term are seeking to fulfill their energy needs any way they can. They are importing liquefied natural gas and increasing production at coal-fired power plants. At the same time, however, the high prices of fossil fuels have encouraged massive public and private investment in renewable energy, such as solar power, and conservation. Even more, governments are signaling they understand the role renewable energy and nuclear power must play in achieving energy security. As a result, despite the short term pullback, investors should expect a bolstered green transition in the medium-term.


In the more politicized U.S., some use energy security as the justification to commit more deeply to “made in America” fossil fuels instead of renewable energy. Opposition by the Republican party to green energy threatens the pace of the green transition. However, with fossil fuel prices likely to stay elevated, we think the U.S. will naturally shift toward green alternatives such as wind and solar as well as electric vehicles.


While we believe the urgency to source energy in today’s political climate will slow the pace of the green transition in the short-term, war in Ukraine has also pushed fossil fuel prices higher and spurred a renewed focus on energy security. This potentially drives private and public investment in renewable energy and energy conservation, for reasons beyond their clean-energy merits. We expect this to accelerate the green transition — and green investment opportunities — in the medium- to long-term.

Explore more investment themes in our Capital Market Assumptions Five -Year Outlook.

*Brookings Institution, 2020

Main Point

Inflation, volatile interest rates and the green transition likely will impact investors’ portfolio decisions for years.

These global trends may spark turbulence for equities and bonds as central banks calibrate for economic changes and surprising political turns. While investors may frame this uncertainty as threats to their portfolios, we think alert investors can uncover plenty of opportunities.

Volatility & Risk

How to Navigate the New Norm of Volatility and Perform

  • Read Now
Yellow line graph on green background

Contact Us

Interested in learning more about our expertise and how we can help? 


For Asia-Pacific (APAC) and Europe, Middle East and Africa (EMEA) markets, this information is directed to institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. The information contained herein is intended for use with current or prospective clients of Northern Trust Investments, Inc (NTI) or its affiliates. The information is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. NTI or its affiliates may have positions in and may effect transactions in the markets, contracts and related investments different than described in this information. This information is obtained from sources believed to be reliable, its accuracy and completeness are not guaranteed, and is subject to change. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor.


This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Indices and trademarks are the property of their respective owners. Information is subject to change based on market or other conditions.


All securities investing and trading activities risk the loss of capital. Each portfolio is subject to substantial risks including market risks, strategy risks, advisor risk, and risks with respect to its investment in other structures. There can be no assurance that any portfolio investment objectives will be achieved, or that any investment will achieve profits or avoid incurring substantial losses. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Risk controls and models do not promise any level of performance or guarantee against loss of principal. Any discussion of risk management is intended to describe NTI or its affiliates’ efforts to monitor and manage risk but does not imply low risk.


Past performance is not a guarantee of future results. Performance returns and the principal value of an investment will fluctuate. Performance returns contained herein are subject to revision by NTI or its affiliates. Comparative indices shown are provided as an indication of the performance of a particular segment of the capital markets and/or alternative strategies in general. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index. Net performance returns are reduced by investment management fees and other expenses relating to the management of the account. Gross performance returns contained herein include reinvestment of dividends and other earnings, transaction costs, and all fees and expenses other than investment management fees, unless indicated otherwise. For additional information on fees, please refer to Part 2a of the Form ADV or consult an NTI representative.


Forward-looking statements and assumptions are NTI or its affiliates’ current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve.  Actual results could differ materially from the results indicated by this information.


Hypothetical portfolio information provided does not represent results of an actual investment portfolio but reflects representative historical performance of the strategies, funds or accounts listed herein, which were selected with the benefit of hindsight. Hypothetical performance results do not reflect actual trading. No representation is being made that any portfolio will achieve a performance record similar to that shown. A hypothetical investment does not necessarily take into account the fees, risks, economic or market factors/conditions an investor might experience in actual trading. Hypothetical results may have under- or over-compensation for the impact, if any, of certain market factors such as lack of liquidity, economic or market factors/conditions. The investment returns of other clients may differ materially from the portfolio portrayed. There are numerous other factors related to the markets in general or to the implementation of any specific program that cannot be fully accounted for in the preparation of hypothetical performance results. The information is confidential and may not be duplicated in any form or disseminated without the prior consent of NTI or its affiliates.


This information is intended for purposes of NTI and/or its affiliates marketing as providers of the products and services described herein and not to provide any fiduciary investment advice within the meaning of Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). NTI and/or its affiliates are not undertaking to provide impartial investment advice or give advice in a fiduciary capacity to the recipient of these materials, which are for marketing purposes and are not intended to serve as a primary basis for investment decisions. NTI and its affiliates receive fees and other compensation in connection with the products and services described herein as well as for custody, fund administration, transfer agent, investment operations outsourcing, and other services rendered to various proprietary and third-party investment products and firms that may be the subject of or become associated with the services described herein.


Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.


Not FDIC insured | May lose value | No bank guarantee