“So far this year an investor who has a basket of TIPS has likely earned 4%-5%, while the broad bond index is down to as low as 1% to 2%,” he said.
To add to their inflation defense, RegentAtlantic has also strategically lowered its holdings in stocks that traditionally perform worse as interest rates rise. “Tech stocks and growth stocks have tended to do worse, so our focus has been on tilting toward smaller companies and value, and away from growth and technology,” Kapyrin said.
So far, the firm has allocated 4% of its $6 billion portfolio to small-cap stocks and 4% to U.S. value. “For small cap we use S&P 600 [SP600]. For value we use State Street SPDR Portfolio S&P 500 Value [SPYV]. We made the allocation changes in the early part of 2021,” he said.
Kapyrin also likes real estate investment trusts (REITS) because he believes persistent and acute housing shortage puts rental real estate in the driver seat for the foreseeable future.
“For publicly-traded REITs, we use plain vanilla Vanguard Real Estate Index Fund [VNQ], which is a broad basket of U.S. publicly-traded investment trusts. The broad access to the U.S. REIT market is really what appealed to us and the fund is tax efficient and has broad diversification. We think REITs can absorb some price increases and are naturally an inflation hedge. Landlords tend to have the upper-hand when there are bidding wars on homes,” he said.
Personally, Kapyrin has put his own homebuying plans on hold for two years because of the steep competition and low inventory for residential properties and “because there is no way I will make a decision that large that fast.”
He is, however, advising clients who haven’t refinanced in three to five years to consider refinancing now if the math makes sense, before rates increase next year. Rates to refinance a 15-year mortgage were as low as 1.9% this week, according to BankRate.com.