Purnima Puri, HPS Investment Partners Managing Partner and Public Credit Strategy Portfolio Manager
Finding income in a world of zero interest rates makes life difficult for fixed-income investors, and inflation only makes work harder.
As price pressures continue to rise, Purnima Puri of HPS Investment Partners is deploying three strategies to reap rewards for her clients, as Fed Chairman Jerome Powell said on Wednesday. He found “frustrating.”
“If you have the kind of environment where people need to buy yields, they will look for the smallest negative real yields, I would argue,” Puri said on CNBC on Wednesday. Delivery Alpha Meeting.
Like her co-member Elizabeth Burton, the chief investment officer of Hawaii’s employee retirement system, Puri said that when inflation is considered, the real yield on U.S. Treasuries is negative, and she does not hold U.S. Treasuries.
Instead, she put forward three fixed income areas that she is currently investing in: floating interest rates, especially loans to companies with high levels of debt and income; short-term high-yield and high-risk premium non-investment-grade credit.
“We do think these are three ways you can get a certain degree of inflation protection, including basic interest rates, which are floating rates and spreads,” said Puri, her company’s managing partner and public credit strategy portfolio manager.
Because of the devaluation of capital that occurs when prices fall as interest rates rise, inflation depresses the value of fixed income.
Puri did say that given the extremely low yields in most of the rest of the world, as interest rates start to rise, she may see people back on the U.S. government debt.
Burton said that investors need to consider inflation strategies. The return on her portfolio in the last fiscal year was 26.1%, the highest level in the system’s 95-year history.
Fed officials Stick to inflationDue to factors brought about by the pandemic, the current 30-year high is temporary. Burton disagreed.
Elizabeth Burton, Chief Investment Officer, Hawaii State Employee Retirement System
NBC Finance Channel
“I never thought it was temporary. I have been talking about inflation for the past year and a half,” she said. “I think some things have gone up, but this is temporary…. But I think many things… such as housing prices, I don’t see signs of falling.”
Burton said that she now holds stocks, mainly defensive sectors and quality stocks.
“We have to own stocks. I’m not sure in the long run how no one can achieve their goals without owning stocks,” she said. “I will not be overweight, I will choose carefully.”
Puri added that she sees inflation as a risk and is not sure if the Fed’s rate hike will help.
“I think we will see inflation, and I think it is currently driven by growth and supply chain issues,” she said. “The question has become, can you solve the supply chain problem? If you can’t solve the supply chain problem, then it is not clear whether raising interest rates can help you quell inflation.”
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