(Bloomberg) -- Money managers who’ve spent the bulk of their careers profiting from deflationary trends need to quickly switch gears or risk an “inflation shock” to their portfolios, warns JPMorgan Chase & Co. chief global markets strategist Marko Kolanovic.

“Many of today’s investment managers have never experienced a rise in yields, commodities, value stocks, or inflation in any meaningful way,” Kolanovic wrote in a report Wednesday. “A significant shift of allocations towards growth, ESG and low volatility styles over the past decade, all of which have negative correlation to inflation, left most portfolios vulnerable.”

After staging a powerful rally since November amid vaccine rollouts and government stimulus, bets tied to inflation -- rising Treasury yields, cyclical stocks and small-caps, to name a few -- have taken pause in recent weeks. While that has sparked debate over how long the trend will persist, Kolanovic urged clients to adjust to the new regime amid the reopening of the global economy.

“Given the still high unemployment, and a decade of inflation undershoot, central banks will likely tolerate higher inflation and see it as temporary,” he wrote. “The question that matters the most is if asset managers will make a significant change in allocations to express an increased probability of a more persistent inflation.”

The way Kolanovic sees it, as data continue to point to higher prices of goods and services, investors will be forced to shift from low-volatility plays to value stocks, while increasing allocations to direct inflation hedges such as commodities. That trend is likely to persist in the second half of the year, he wrote.

Based on JPMorgan’s data, professional investors have yet to fully embrace the reflation trade. Take equities, for instance. Both computer-driven traders and hedge funds now hold stocks at levels below historical averages.

“Portfolio managers likely will not take chances and will reposition portfolios,” Kolanovic wrote. “The interplay of low market liquidity, systematic and macro/fundamental flows, the sheer size of financial assets that need to be rotated or hedges for inflation put on, may cause outsized impact on inflationary and reflationary themes over the next year.”

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