Given an outlook for high U.S. inflation that’s likely to persist beyond 2022, Gargi Chaudhuri of BlackRock Inc., the world’s biggest asset manager, says investors should continue to hedge their portfolios with exchange-traded funds focused on inflation-linked bonds, commodities, infrastructure and real estate.
Wednesday’s consumer-price report for December is likely to produce a headline year-over-year gain of more than 7%, the highest in almost 40 years, and to reflect a “broad-based” rise in inflation, Chaudhuri, head of iShares investment strategy for the Americas, wrote in a Tuesday note. Having a multiasset strategy is necessary in an environment in which inflation will probably settle above its pre-pandemic era levels “even after pandemic reopening effects have run their course.”
The prospect of inflation that runs too hot for too long in the U.S. remained at the forefront on Tuesday, as lawmakers questioned the U.S. central bank’s ability to tackle price pressures during the confirmation hearing of Federal Reserve Chairman Jerome Powell, who has been nominated by President Joe Biden to serve a second term leading the institution.
Investors took the testimony in stride, with Dow industrials
, S&P 500
all turning higher, though Treasury yields remained mixed.
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Traders foresee a total of three months of headline CPI readings that come in at or above 7%, including December’s, and don’t expect that measure to fall below 3% through November. Meanwhile, big names like JPMorgan Chase & Co’s
Jamie Dimon are expecting more than four rate increases from the Fed this year.
“While we do not expect headline CPI inflation above 6% to persist over the medium term, we see room for inflation to settle at a higher level than the pre-pandemic era of sub-2% core inflation,” Chaudhuri wrote. “The continuation of powerful restart dynamics, more persistent supply chain challenges, strength in the all-important shelter inflation category of the CPI basket, and a savings-and wage-rich consumer will contribute to above-trend inflation.”
She recommended that investors hedge by using ETFs managed by BlackRock such as: iShares 0-5 Year TIPS Bond ETF
; iShares TIPS Bond ETF
; iShares GSCI Commodity Dynamic Roll Strategy ETF
; iShares U.S. Infrastructure ETF
; and iShares U.S. Real Estate ETF
. Her recommendations are similar to those she gave in a December interview with Bloomberg TV, though at that time she said she expected inflation to moderate later in 2022.
In Tuesday’s commentary, Chaudhuri also said she recommends stock investors “barbell their portfolio with value
and quality factor oriented sectors
of the market and focus on floating rate bonds
in fixed income allocations.” She couldn’t immediately be reached for comment on Tuesday.
New York-based BlackRock oversaw a total of $9.46 trillion as of the third quarter.