We speak with Jeremy Schwartz, Global Head of Research at WisdomTree, about how investors should position their portfolios in response to the conflict in Ukraine, rising inflation and a March rate hike. Schwartz also talks about why the current dynamics in Ukraine and Russia illustrate one of the main use cases of cryptocurrencies.
With inflation at its highest level in more than a generation, what are the factors behind this rise? And how long do you see this period continuing?
Certainly, supply chain issues are having an impact but bigger picture, the unprecedented money supply increase from the pandemic response is what is pressuring inflation higher. We see elevated inflation over the coming three years and think inflation will be stickier than the Fed has suggested.
With the Fed signaling that a March rate hike and many more may be forthcoming, how should investors consider positioning themselves?
We see the Fed having to hike interest rates aggressively through 2022 and 2023 and we believe inflation is going to be a longer lasting phenomenon than people realize. Floating rate treasuries and our ETF USFR deserve strong consideration to hedge duration during the interest rate hikes. WisdomTree believes USFR is the best positioned ETF for this next Fed hike cycle.
How is cryptocurrency playing a role in this type of economic environment? Do you see wider adoption of the digital asset taking place?
The current dynamics in Ukraine and Russia illustrate one of the central use cases of bitcoin and cryptocurrencies. Sanctions are hurting Russians who have exposure to the Ruble with significant losses of purchasing power happening. Being able to take your assets anywhere in the world on a mobile device and not relying on banks is an added catalyst for much of the global population to consider crypto assets, and bitcoin in particular.
How should investors evaluate the Russia and Ukraine crisis? How should they consider positioning their portfolios?
The major theme of the last six months has been towards lower-duration, high-dividend value and quality stocks. Our Senior Investment Strategy Advisor Jeremy Siegel believes the dominant theme for the markets over the coming weeks is the Fed and inflation, and not the Ukraine crisis. Stocks with strong cash flows and profitability metrics, especially those with pricing power, are likely to perform well in light of these inflation dynamics.
Stocks with pricing power are well represented in quality dividend-growth-focused indexes and strategies, and these indexes have weathered market volatility over the last three months quite well. The valuations of quality dividend growth stocks make them attractive over the short run, while their profitability metrics make them valuable over the long run.
There are risks associated with investing, including possible loss of principal. Securities with floating rates can be less sensitive to interest rate changes than securities with fixed interest rates but may decline in value. The issuance of floating rate notes by the U.S. Treasury is new and the amount of supply will be limited. Fixed income securities will normally decline in value as interest rates rise. The value of an investment in the Fund may change quickly and without warning in response to issuer or counterparty defaults and changes in the credit ratings of the Fund’s portfolio investments.
Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds before investing. U.S. investors only: to obtain a prospectus containing this and other important information, please call 866.909.WISE (9473) visit wisdomtree.com. Read the prospectus carefully before you invest.
Distributor: Foreside Fund Services, LLC.
This material contains the opinions of Jeremy Schwartz and Jeremy Siegel, which are subject to change, and should not be considered or interpreted as a recommendation to participate in any particular trading strategy, or deemed to be an offer or sale of any investment product, and it should not be relied on as such. Professor Jeremy Siegel is a Senior Investment Strategy Advisor to WisdomTree Investments, Inc., and WisdomTree Asset Management, Inc. There is no guarantee that any strategies discussed will work under all market conditions. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This material should not be relied upon as research or investment advice regarding any security in particular. The user of this information assumes the entire risk of any use made of the information provided herein. Unless expressly stated otherwise, the opinions, interpretations or findings expressed herein do not necessarily represent the views of WisdomTree or any of its affiliates.
Jeremy Schwartz is a Registered Representative of Foreside Fund Services, LLC. WisdomTree Funds are distributed by Foreside Fund Services, LLC, in the U.S. only.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.