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First Quarter 2014

Our Global Macro Strategy Team's Inflation View

Summary of Our Inflation Views

  • Continued Containment in Near Term: U.S. inflation, as measured by the Consumer Price Index (CPI), was muted in 2013. We expect it to remain largely contained (1.5-3.0%) during the next 12 months. It should not threaten the Federal Reserve's (the Fed's) near-zero percent short-term interest rate policy.
  • Longer-Term Monetary-Driven Inflation Risks: We believe higher inflation (a CPI change exceeding 3% 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 in response to the 2008 Financial Crisis and the subpar, extended recovery since then. Monetary policies in general, particularly in the developed world, remain highly aggressive and stimulative.
  • Longer-Term Fiscal Budget Deficit Risks: Fiscal budget deficits in the U.S. and across the developed world remain high. Governments 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

  • Fed's Tapering Decision: The Fed decided to reduce its $85 billion per month QE3 purchases to $75 billion, starting in January. Tapering is considered anti-inflationary.
  • Fed's Forward Guidance on Interest Rates: The Fed expects to keep its rate target at its current level "well past the time that the unemployment rate declines below 6.5%." This could have long-term inflationary impacts.
  • Federal Budget Compromise: Congress reached a bi-partisan compromise on a two-year federal budget agreement. It locks in sequester-level spending, with adjustments, and provides more fiscal clarity. Sequester-related spending cuts are anti-inflationary.
  • Housing Recovery Lost Momentum: Last year's Taper Tantrum and government shutdown slowed the U.S. housing market's recovery. Higher mortgage interest rates and increased economic uncertainty slowed the rate of home price increases.
  • Changes to Our Expectations: We shifted our inflation expectations slightly lower. For the next 12 months, we see Higher Inflation (above 3%) as a 20% possibility (vs. 24% last quarter), Contained Inflation as 63% (vs. 62%), and Lower Inflation (below 1.5%) as 17% (vs. 14%).
  • Changes to Directional Trend Arrows: Just one--global economic growth entering 2014 looks stronger/less uncertain than at the beginning of 2013, so we changed its down arrow to sideways. But the price arrows remain mostly downward.

American Century Investments' Inflation Suite

American Century Investments offers an array of options for implementing a customized strategy designed for the goal of preserving purchasing power, regardless of how a portfolio is currently structured. Options include:
  • A comprehensive solution (Strategic Inflation Opportunities) that represents our best thinking about how to combine inflation-fighting tools in a single portfolio.
  • Funds focused on traditional inflation hedges such as inflation-indexed bonds, commodities-related investments and real estate securities.
Key Fund Objectives
Fund Helps Provide Inflation Protection Through: Helps Provide Inflation Protection, Plus: Inflation Hedge for:
Strategic Inflation Opportunities Fund Multi-asset mix Ease of Use
Comprehensive, multi-strategy solution
Overall Portfolio
Inflation-Adjusted Bond Fund Investment-grade, inflation-indexed bonds High Quality
100% investment-grade portfolio
Fixed Income
Short Duration Inflation Protection Bond Fund Short-duration bonds, primarily inflation-indexed Low Interest Rate Risk
Short-duration portfolio
Fixed Income
Global Gold Fund Gold company stocks Stocks/Bonds/Cash Alternative
Low correlation to traditional asset classes
Equities
Real Estate Fund Domestic 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: 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, Short Duration Inflation Protection Bond Fund: Generally, as interest rates rise, the value of the securities held in these funds 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 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 the Global Macro Strategy Team at American Century Investments 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.