Inflation Monitor

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Second Quarter 2015

Our Global Macro Strategy Team's Inflation View

Summary of Our Inflation Views

  • Continued Contained Inflation in Near Term: U.S. inflation, as measured by the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE), remains muted. We expect it to remain largely contained (1.5–3.0%) during the next 12 months.
  • Longer-Term Monetary-Driven Inflation Risks: We believe higher inflation (a CPI change exceeding 3.0% over a 12-month period) will likely occur within the coming three- to five-year time frame. We think it will most likely result from the unprecedented monetary and fiscal policies enacted since 2008, and resulting improvements in economic growth. Monetary policies in general, particularly in the developed world, remain aggressive and stimulative.
  • Longer-Term Fiscal Budget Deficit Risks: Fiscal budget deficits in the U.S. and across the developed world remain high. Governments, particularly outside the U.S., have responded to this challenge with attempts at currency devaluation and monetization of debt, both of which are potentially inflationary.
  • Concerned About Complacency: We remain concerned about complacency. Potential monetary-driven and/or budget deficit-induced inflation are still long-term threats. We believe strongly that some level of inflation protection be incorporated in investor portfolios.

Changes Since Last Quarter

  • More Global Divergence; Possible Delayed U.S. Interest Rate Normalization: The European Central Bank (ECB) embarked on a massive bond-buying program, driving down some European sovereign bond yields to record-low, negative levels. Low European interest rates helped make the U.S. dollar and Treasuries more attractive. Meanwhile, the Fed continued to prepare for interest rate normalization (higher rates), switching from forward guidance (language triggers) to data dependency (data triggers), but also tempering rate hike expectations by lowering its economic forecast numbers.
  • Divergence, U.S. Normalization Expectations Translated to Market Volatility: The U.S. dollar and Treasuries continued to rally, commodity (including oil) prices continued to decline, and there were intermittent bouts of risk-on versus risk-off trading in other markets as investors responded to changing earnings, inflation, monetary policy, and economic growth expectations. Renewed concerns about Greece and Middle East geopolitical turmoil helped create a recipe for market volatility, which we expect to continue through the remainder of the year.
  • Changes to Expectations: For the next 12 months, we see Higher Inflation expectations (above 3.0%) as a 15% possibility (vs.17% last quarter), Contained Inflation expectations as 64% (vs. 60%), and Lower Inflation expectations (below 1.5%) as 21% (vs. 23%).
  • Changes to Directional Trend Arrows: None.

Designing Better Outcomes: Inflation Solutions

American Century Investments offers a broad suite of inflation solutions designed to help preserve purchasing power. Our diverse set of six strategies can help offset various sources of inflation and can be easily integrated into existing investment portfolios.

Key Objectives

Fund Provides Inflation Hedging Through: Provides Inflation Hedging, Plus: Inflation Hedge for:
Short Duration Inflation Protection Bond Fund Short-duration bonds, primarily inflation-indexed

Low Interest Rate Risk
Short-duration portfolio

Fixed Income
Inflation-Adjusted Bond Fund Investment-grade, inflation-indexed bonds High Quality
100% investment-grade portfolio
Fixed Income
Real Estate Fund U.S. REITs

Stocks/Bonds/Cash Alternative
Exposure to rising rental costs

Equities
Global Real Estate Fund Global REITs Stocks/Bonds/Cash Alternative
Exposure to rising global rental costs
Equities
Strategic Inflation Opportunities Fund Multi-asset mix

Ease of Use
Comprehensive, multi-strategy solution

Overall Portfolio
Global Gold Fund Gold company stocks Stocks/Bonds/Cash Alternative
Low correlation to traditional asset classes
Equities

Strategic Inflation Opportunities Fund:
The value of the fund's shares may fluctuate significantly in the short term. At any given time your shares may be worth less than the price you paid for them. Since inflation-indexed securities trade at prevailing real, or after-inflation, interest rates, changes in these rates affect the value of such securities owned by the fund. Generally, when real interest rates rise, the value of these securities will decline. The opposite is true when real interest rates decline. Debt securities also are subject to credit risk. Investment in debt securities issued by entities other than the U.S. Treasury or U.S. government and its agencies may increase the potential credit risk associated with the fund. The fund's commodity-related investments may be subject to greater volatility than investments in traditional securities. Investing in foreign securities has certain unique risks that make it generally riskier than investing in U.S. securities. Investing in securities of issuers located in emerging market countries generally is riskier than investing in securities of companies located in foreign developed countries. The fund is classified as non-diversified; therefore, it may be more volatile than if it was diversified.
Inflation-Adjusted Bond Fund, Short Duration Inflation Protection Bond Fund:
Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline.
Fund shares are not guaranteed by the U.S. Government.
The prospectus contains very important information about the characteristics of the underlying securities and potential tax implications of owning these funds.

Global Gold Fund, Real Estate Fund, Global Real Estate Fund:

Due to the limited focus of these funds, they may experience greater volatility than funds with a broader investment strategy. They are not intended to serve as a complete investment program by themselves.
International investing involves special risks, such as political instability and currency fluctuations.
Understanding inherent risks such as interest rate fluctuation, credit risk and economic conditions are important when considering an investment in real estate.
Global Gold Fund:
Redemption of Institutional Class Shares, Investor Class Shares or R Class Shares within 60 days of purchase will be subject to a 1% redemption fee.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

The opinions expressed are those of American Century Investments (or the fund manager) and are no guarantee of the future performance of any American Century Investments fund. This information is for educational purposes only and is not intended as investment advice.

For detailed descriptions of indices or investing terms referenced above, refer to our glossary.

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