By Nick DePersis, Investment Manager, ISDA
In what feels like a scene from the movie “Groundhog Day,” another quarter and more inflation concerns! What has been the major story of most of 2022, rampant inflation, has continued to dominate as we enter the fourth quarter of the year. We have seen GDP/Inflation data come in close to or over 8% for most of the year, causing Chair Powell and the Federal Reserve to take the most aggressive rate hiking path that we may have ever seen. After multiple unprecedented 75 basis point hikes earlier this year, causing massive spikes in interest rates and sharp selloff in all asset markets, the public is growing restless as they have seen their wealth erode, yet prices of goods continue to stay at multi-decade highs.
What we are currently facing is a unique situation that sits somewhere between a perfect storm of negative headwinds and a strategic investment opportunity. We have been navigating a climate with parabolically rising interest rates putting significant pressure on all assets classes, but mainly on fixed income. As with any challenging environment, through diligent management we have been able to identify opportunities. We have been able to purchase new highly rated bonds with yields well over 5.5% to 6%, rates not seen in many years. We have also taken the opportunity to reposition some of our lower investment grade bonds with much stronger credit and better yields.
As the year begins to wind down, we will be paying very close attention to the data that is coming out as we are looking for signs that inflation has — or has begun — to peak here in the U.S. If the news is good, then the Fed will evaluate whether to soften its approach and ease away from short term interest rate hikes. When we finally see this pivot, it will be a very welcomed sign for the markets, but even more for interest rates, which should begin to fall on that news. Until then, we will stay agile and look to continue to take advantage of this environment in any way we can.
I am proud to present the ISDA Financial Life financial report for the 3rd Quarter 2022.