With Inflation Expected to Edge Higher, BlackRock Says Buy TIPS

They’re the best way to offset an upward trend in the CPI, the firm advises.


Inflation is on the rise, if modestly, as shown by this morning’s Consumer Price Index (CPI), and by increases in bond yields. BlackRock’s answer: Invest in Treasury inflation-protected securities (TIPS).

“All this reinforces our view on growth, rates, and inflation, and underpins our preference for inflation-protected securities over nominal US Treasuries,” wrote Jean Boivin, head of the BlackRock Investment Institute, and his team, in a report released the day before the CPI announcement.  

“We expect the Fed to lean against any further spike in nominal bond yields,” the report said. Boivin wrote that he anticipated gradual inflation over the next two years at least.

Inflation last month rose 1.4% year over year, in line with market expectations, showing a small move-up. Expecting a slow upward trend in inflation, the benchmark 10-year Treasury’s yield has risen to 1.14% annually, compared with the 0.5% low point in March, amid the pandemic’s onset. Still, that’s a decent remove from the 1.8% at the start of last year, let alone the five-year high point of 3.2% at the end of 2018.

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With muted inflation for years, TIPS haven’t been the place to be. One of the most popular ways to invest in TIPS is the exchange-traded fund iShares TIPS ETF. This vehicle has recorded low- to mid-single digit returns over the past five years. It did perk up last year as inflation expectations stirred amid massive stimulus to combat the pandemic-induced recession. Nonetheless, the ETF trailed the overall bond market.

To BlackRock, the Federal Reserve can be counted on to prevent inflation from overheating—although many doubt a soaring CPI is likely anyway, given tech advances and foreign competition. A blip up, however, “could accelerate our new nominal theme,” the BlackRock report indicated, “pushing inflation higher over time, but with the Federal Reserve keeping the rise in US Treasury yields in check.”

Vexed by prolonged subdued inflation for years, the Fed has altered its inflation policy: The central bank now targets an average range instead of its longstanding 2% goal. That means inflation could rise above that 2% level, but the Fed would let it ride for a while.

Broadly speaking, the signs point in that direction. The break-even point, the expected inflation embedded into TIPS, is rising and now has almost reached the five-year top point, attained in October 2018. That’s when inflation last was thought to be on a climbing trend (not so much of one, it turned out).

This year, some expect inflation to shoot higher still. For instance, Jeff Gundlach, the DoubleLine Capital CEO, thinks the CPI will reach 3% by May or June. Appearing on CNBC earlier this week, he said, “I do think inflation is a real game changer, should it occur. That certainly is why rates are rising.”

The last time over the past decade that inflation breached 3% was in 2011, amid a post-recession burst (which ebbed, too). The CPI increase that year was 3.2%. Since the early 1980s, when the Fed crushed rampant inflation, the figure hasn’t crept above low single digits.

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Blackstone Poaches Brown’s Joe Dowling

Chair of university’s investment office tapped to co-lead firm’s $78 billion alternative asset unit.


Blackstone has named Joseph Dowling, the chair of Brown University’s Investment Office, as its new global co-head of Blackstone Alternative Asset Management along with John McCormick, effective Tuesday.

Dowling, who also served as Brown’s vice president and CIO from 2013 to 2018, has been a key part of the growth of the endowment, which has been among the top-performing universities in the country in recent years. Since July, Dowling has been serving in a part-time role at Brown as chair of the investment office and senior adviser to Brown President Christina Paxson.

Brown’s endowment returned 12.1% for the fiscal year that ended June 30 to raise its asset value to a record high of $4.7 billion, marking the fourth consecutive year the endowment posted returns higher than 12%. The portfolio returned 12.4% in 2019, 13.2% in 2018, and 13.4% in 2017. During that time, the asset value of the portfolio rose 34%, and over the last decade, the endowment has produced $3.2 billion in investment gains.

Brown said its investment returns rank among the top 5% of college and university endowment results over trailing one-, three-, five-, and 10-year periods. In the Ivy League, Brown is No. 1 over the one-, three-, five-, and seven-year periods.

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“Joe’s contributions to Brown speak for themselves,” Paxson said. “Brown has led the country in endowment performance the past two years and ranked among the top endowment performers in higher education nationally the past several years.”

During Dowling’s tenure as CIO, Brown’s endowment grew to $3.8 billion from $2.6 billion and produced more than $1.7 billion in investment returns. The endowment also contributed more than $1 billion to Brown’s operating budget during that time.

In July 2018, Dowling became CEO of Brown’s Investment Office while Jane Dietze was tapped as its new CIO. Dowling also served as interim chief financial officer (CFO) of the university from May 2019 until January 2020.

Blackstone Alternative Asset Management invests in primarily liquid and semi-liquid investment strategies for institutional and retail investors. While the firm mostly allocates to hedge funds, it has also diversified into newer businesses including special situations, general partner stakes, liquid alternatives, and equity capital markets. Dowling will oversee all investment activities of the unit, which has $78 billion of assets under management (AUM).

Prior to joining Brown, Dowling was the founder and CEO of Narragansett Asset Management, where he managed funds for institutions, pension funds, and endowments. Dowling has also worked for First Boston, Tudor Investments, and Oracle Partners. He has a bachelor’s degree and a master’s in business administration from Harvard University.

“Joe has a leading track record in allocating capital, investing directly, and building tremendous teams,” Blackstone President and Chief Operating Officer (COO) Jon Gray said in a statement. “We believe that the combination of Joe and John will enable us to expand into new areas and deliver even better returns for our investors, while maintaining our focus on downside risk, a hallmark of BAAM’s business.”

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