Page 17 - Investment Advisor December 2022/January 2023

If you believe, as we do, that inflation So we’ve been adding to the Treasurys cern is that the recession is not just nar-
doesn’t stay elevated in multiple years in our portfolios — taking more interest rowly contained. So far, there’s not a lot
going forward, that it gets on some path rate risk. of evidence that a broad-based recession
back to the Fed’s objective, the inflation is on the horizon. It seems that it’s going
rate will run at about 2% to 3% over Some say the U.S. is already in a to be more narrowly focused.
the next few years. If that’s the case recession. What do you think?
and you’re earning 5% on a high-quality I don’t see us being in a recession [now] To what extent is there inflation
[portfolio], that means your purchasing because the consumer has stayed resil- in health care, where prices are
power is preserved. ient. But the 90-trillion-dollar question usually rising?
is: Can we stave off a recession? It’s The health sector will actually have a
What sorts of bonds would be best? becoming increasingly likely that we’ll drag on inflation, making it a negative
You don’t have to buy junk bonds and have some form of recession in 2023. But contributor. Health care is a bigger piece
get a 10% yield. You can buy corporate what is the depth and breadth of it? of the index [that the Federal Reserve
bonds that yield almost 6% today. You Is it going to be a recession focused on, uses]. That component is expected to be
can pair these with Treasurys. let’s say, the real estate market [since] we a detractor from the overall inflationary
In our view, balancing out the credit know that housing is [slow] and mort- picture.
risk and the interest rate risk is giv- gage rates are extremely high. It’s pretty
ing you one of the better opportunities easy to see there’s going to be a meaning- What are the implications to
on a forward-looking basis — a more ful slowdown in that part of the market. investors?
risk-managed portfolio. No one really But the question becomes: Does it We’ll have to watch that because a lot of
knows how deep the recession will be. bleed over into other things? The con- people didn’t expect the spike we saw

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DECEMBER 2022/JANUARY 2023 INVESTMENT ADVISOR 15