Vanguard: Now's the Time for TIPS

Any problems in the U.S. ecoonomy could make Treasury inflation-protected securities nice to own, according to Roger Hallam, the global head of rates at Vanguard.

Hallam made the case for adding TIPS to a client's portfolio Monday, during a webinar for financial advisors. "We do think it's attractive to increase the level of inflation protection within portfolios at present," he said.

Because TIPS are backed by the government, they can also serve as a hedge against volatility caused by problems in the Middle East or elsewhere, explained Hallam, who oversees Vanguard's Treasury, mortgages, currency and money market teams.

Vanguard investment managers think the most likely scenario is that the U.S. economy will stay on the same mildly pleasant path. One of concern is that the strength of the U.S. economy is driving up prices. Another concern is geopolitical risk.

"We could see less favorable outcomes in the Middle East," and that could push up transportation costs and prices, Hallam said.

Other Fixed Income Assets

Chris Alwine, Vanguard's global head of credit, explained how high-yield bonds, loans and private credit fit in a fixed-income portfolio.

High-yield bonds have a place partly because many of the issuers are big, strong companies with carefully thought-out borrowing strategies, not shaky companies, Alwine said.

He also sees investing in loans as a way to get good deals. The same issuer might have bonds and loans available, and it likely has put up collateral to secure the loans and increase the loans stability.

"When there's disconnections or dislocations between where they're priced relative to each other in the capital structure, that provides opportunities," Alwine said. Firms that use private capital tend to be small, low-rated issuers with a great deal of debt.

Private credit has not yet been tested in a deep downturn, he said, adding: "There will be a lot learned as we go through the next recession,"

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