Investments with pricing power is crucial amid inflation fears: expert

Yahoo Finance’s Akiko Fujita and Emily Bowersock Hill, Bowersock Capital Partners Founding Partner, discuss the market action and outlook.

Video Transcript

AKIKO FUJITA: Bank and media stocks under pressure today after hedge fund Archegos Capital Management was forced to unwind its assets. Credit Suisse and Numerai Holdings warning of significant losses stemming from their client there. Let's bring in Emily Hill, Bowersock Capital Partners founding partner.

Emily, I'm curious how you're looking at this unfolding in the markets. Financials certainly was seen as a big beneficiary on the back of a higher yield environment. We're seeing it get hit in a big way. How much of this do you think is contained to Numerai and Credit Suisse? How much of a ripple effect are we going to see?

EMILY BOWERSOCK HILL: I expect this to be reasonably contained. In fact, for clients that were underweight financials, I see today as an opportunity to actually add to that sector. I think that this is going to be a pretty reasonably absorbed by the markets.

AKIKO FUJITA: What gives you confidence to say that? Walk me through your thesis there.

EMILY BOWERSOCK HILL: Well, you know, I think this does not change the fact that we're in a rising, what's very likely to be a rising interest rate environment over the next two to three years. So while we could see an increasing hit to financials in the short term, for long term investors, I think it's important to have a healthy investment in that sector.

AKIKO FUJITA: And speaking of rising rates, we are seeing the 10 year hover just below that 1.7% mark today in terms of the yield there. What do you think that signals? And how big of a concern should that be? We're not seeing the same kind of reaction that we have seen in previous sessions as it relates to those yields rising. But how are you looking at that?

EMILY BOWERSOCK HILL: I actually think the bond market is not responding to the threat of rising inflation the way it typically does. I think that may be because the Fed has been adamant about any increases of inflation being transitory. I wonder myself if the Fed is being a bit too complacent.

AKIKO FUJITA: Let's talk about some of the sectors that you're liking. You've talked about increasing exposure to inflation sensitive assets, infrastructure a big topic this week, with the president expected to unveil his plan, commodities as well. What specifically are you liking, and how do you look at the space overall?

EMILY BOWERSOCK HILL: Any investment with significant pricing power is important to have in periods where you expect inflation to rise. There's definitely a debate between-- the debate has shifted from those the deflationary camp, to the inflation camp, to the central question being, is inflation going to be controlled, or are we going to get in a situation where you know the Fed is behind the eight ball?

So we're positioning our clients' portfolios for both of those. And so we want to invest in any kind of asset that has pricing power. And that would include private real estate. That would include infrastructure funds. That would include industrials that are less sensitive to rising import and commodities prices and commodities in general.

AKIKO FUJITA: What do you see in terms of where the greenback is likely to move on the back of the case that you have laid out?

EMILY BOWERSOCK HILL: I'm a dollar bearer in the long term. In the short term, I would not be at all surprised if the dollar continues to rise. And I say that because while as you point out our Treasury yields are at about 1.7% today, that is considerably higher than the yields that you see in the rest of the world. So I expect this short term rise in the dollar probably to continue for three to six months. Again, for the long term, I'm a dollar bearer.