Inflation forces a generational rethink among investors

After more than thirty years of falling rates, globalization and passive dominance, a new era is forcing investors to rethink the rules. These macroeconomic shifts are shaping not only asset prices, but also the formative experiences of a new generation of investment professionals. A new generation is stepping into wealth management just as the old certainties are coming undone.

Inflation is back. The global trading order is fragmenting. And the efficient, central-bank-cushioned investment landscape that gave rise to index-tracking funds and megacap dominance is no longer reliable. Frédéric Leroux, an investment veteran with more than 35 years of experience who joined Carmignac in 1995 and now serves as head of cross asset, sees the generational transition first-hand.

“When you are 30 years old, you have your first experience somewhere, you come to Carmignac and you see the cycle is there, believe me, you will be taught here how to handle this new environment,” said Leroux. “I am 60 years old. I am there to make sure that the young guys are aware of the new regime we are facing, and the world also. It’s a question of culture.”

“Active managers, many of them disappeared or were swallowed by others. But the ones that have survived may have a second wonderful life.”

“What is sure is that ETFs made a killing over the previous 15 years. Active managers, many of them disappeared or were swallowed by others. But the ones that have survived may have a second wonderful life. That’s clearly my conviction.”

The re-emergence of the inflation cycle is a structural shift, not a passing storm, Leroux said. He argues that the era of passive dominance is drawing to a close, and with it, the easy gains of buy-and-hold strategies.

“Buy-and-hold is not an option,” Leroux said during an interview with Investment Officer. “You have to be able to buy and sell, and buy and sell, and go from growth sectors to cyclical sectors, from equities to bonds, and bonds to equities.”

Structural reversals

Leroux is convinced that structural inflation is not a temporary spike but a consequence of five deep structural reversals: demographics, geopolitics, energy, socio-economic attitudes, and globalization.

“Most investors still underestimate the long-term nature of what’s unfolding,” Leroux said. “They treat the recent inflationary shock as a temporary supply chain issue. But what we’ve witnessed since 2021 is the beginning of a lasting structural reversal.”

These factors, which once helped suppress prices, now act to accelerate them. For wealth managers and investors, it marks the end of a prolonged period of passive dominance and reintroduces a world where timing, selection, and sector rotation matter again.

“When the cycle is back, the active fund manager has his compass again. It recreates the ability of active managers to make a difference again,” Leroux said. “That compass had disappeared during the 2010s. No inflation, no cycle. The central banks did everything they wanted, so you had zero percent interest rates, and you had Amazon going to the roof, with Apple, and so on. Now it’s different.”

Germany back in play

Perhaps most striking is Leroux’s view on market geography. The German market, long weighed down by expensive energy and the perception of industrial decline, is showing renewed relevance in a cyclical context.

“You see the German market behaving the way it does, for good reason. It’s very rich in industry.”

“You see the German market behaving the way it does, for good reason. It’s very rich in industry. For the time being, in Germany, energy is expensive. Nevertheless, it’s a very interesting market in the context I described,” Leroux noted.

That context includes the reversal of global trade patterns, the reshoring of manufacturing, and the fading appeal of capital-light tech stocks in favor of sectors tied to physical production and infrastructure. Germany, with its export-heavy Mittelstand economy, sits at the crossroads of that transition.

Leroux also sees renewed opportunity in emerging markets, particularly as capital begins to shift away from the United States. “Lots of investors will end up selling their US assets to buy emerging market assets, European assets, Japanese assets. To do so, they will have to sell the dollar and buy again the yen and the yuan and the euro, which will also contribute to a weaker dollar.”

Trump as a symptom, not a cause

In Leroux’s view, the political turn toward protectionism and nationalism, best exemplified by Donald Trump’s tariff policies, is not the driver but the consequence of these underlying shifts.

“Trump is a consequence of the reversal of the big trends.”

“Trump is a consequence of the reversal of the big trends,” he said. “Global trade had already peaked. Pax Americana was already in trouble. The US electorate wants someone who says, ‘I will take care of you, America, rather than take care of the rest of the world.’”

This change in voter sentiment has ushered in an era where fiscal dominance may replace monetary policy, where sovereign interests are redrawn, and where asset prices become increasingly sensitive to geopolitical risk. For investors and wealth advisers, Leroux said, it requires a broader, more tactical perspective.

Further reading on Investment Officer Luxembourg:

• ETF investors lose faith in U.S. and turn to Europe

• IMF: geopolitical events can depress stock prices by 1 percent

• ‘US trade deficit is a mathematical problem, not a political one’

SIDEBAR: 

Three Generations of Financial Professionals

1. The Gekko Generation
Born in the 1950s–60s | Came of age in the 1980s–90s
This cohort of fund managers and advisers was forged in the aftermath of stagflation and the Volcker shock. They learned to manage through cycles, time markets, and respond to interest rate shifts. Their world was high-volatility, macro-driven, and increasingly global. They embraced risk and rewarded contrarian thinking. Think leather briefcases, faxed research notes, and early Bloomberg terminals.

2. The ETF Generation
Born in the 1970s–80s | Rose in the 2000s–2010s
Trained in the Great Moderation and matured during the QE years, this generation was shaped by passive strategies, fee compression, and the central bank put. For many wealth managers and investors in this group, asset allocation meant buying broad indices and staying put. US equities and big tech became the default portfolio core. The S&P 500 tracker was the symbol of this era.

3. The Post-Pivot Generation
Born in the 1990s–2000s | Emerging today
This group is entering a radically different landscape. Inflation is persistent, geopolitics is reshaping trade flows, and asset classes behave with less correlation and predictability. For fund managers, it means learning how to reallocate dynamically. For wealth managers and investment advisers, it means rethinking diversification, regional exposure, and real economy assets. They will need to master the new language of cyclical investing. Fast.