Laura Lallos 

Each issue of Morningstar magazine closes with “10 Questions,” a wide-ranging question-and-answer session with a proven investor.

In June 2018, Laura Lallos, Morningstar magazine’s managing editor, interviewed Gemma Wright-Casparius, a principal at Vanguard and a senior portfolio manager on a number of fixed-income funds, including Vanguard Inflation-Protected Securities VIPIX, which has earned a Morningstar Analyst Rating of Gold. Wright-Casparius has worked in investment management since 1980 and joined Vanguard in 2011. She has a BBA and MBA from Baruch College of The City University of New York.

Q: What is Vanguard’s inflation outlook?

Wright-Casparius: We anticipate a cyclical rebound in inflation, with the Fed achieving their inflation target of core PCE (personal consumption expenditures) at 2% by the end of 2019. However, we do not anticipate inflation to remain above this level over the medium term, as structural forces such as demographics, technology, and globalization will dampen inflationary pressures.

Q: What do you expect from the Fed?

Wright-Casparius: At the March meeting, the Fed underscored commitment to symmetry of their long-run inflation goal. This implies a modest pace of rate hikes for 2018. We currently forecast a total of three rate hikes for each of 2018 and 2019.

Q: Where are the best opportunities today?

Wright-Casparius: We are beginning to look at long-dated forward yields as a potential opportunity. The market has stayed largely in line with the Fed’s rate path for 2018 but has yet to fully discount three rate hikes for 2019. If growth remains strong and interest rates rise, we think duration will be attractive to strategically own.

Q: Are there still opportunities in credit?

Wright-Casparius: Valuations appear rich relative to historical levels, so we are cautious—especially with a Fed in motion toward higher rates. But corporate fundamentals remain solid given the underlying strength of the U.S. economy, uptick in global growth, fiscal stimulus, and corporate tax reforms. While we are likely in the latter stages of the credit cycle, high yield continues to offer attractive carry given our expectation that default rates will remain below the historical average over the near term.

Q: How will rising rates affect investors in Vanguard Inflation-Protected Securities?

Wright-Casparius: Inflation-linked securities are bonds, and as interest rates rise, a bond’s principal return declines. However, a TIPS fund is consistently reinvesting maturing bonds, interest, and inflation compensation at higher rates, which helps to partially offset those returns over time. Also, TIPS protect against unexpected increases in inflation. If our modest inflation outlook underprices realized inflation, then TIPS will help protect your portfolio.

Q: What’s the best advice you’ve received?

Wright-Casparius: Challenge yourself both personally and professionally, don’t be afraid to take risk, and remember that out of chaos comes order.

Q: Where would you be working now, if not within financial services?

Wright-Casparius: I wanted to be a doctor but didn’t have the financial support to pursue it. Investing is incredibly satisfying as the markets are very dynamic, intellectually challenging, and a wonderful opportunity of helping people in a different way.

Q: What do you enjoy doing when you aren’t investing?

Wright-Casparius: Gardening, traveling, and cooking. Simply being with my family—I am one of seven siblings— and friends makes me happy.

Q: What book are you recommending these days?

Wright-Casparius: I have read, reread, and widely recommended Total Leadership by Stewart D. Friedman to those struggling with finding balance or meaning in their lives.

Q: Where did you go on your last vacation?

Wright-Casparius: We have been exploring the U.S. over the last year: Cleveland for the Rock and Roll Hall of Fame, Pittsburgh for baseball, NYC for the U.S. Open, and perhaps our favorite as a family, Woodloch Pines in the Poconos—an institution!

This blog post is adapted from an article that originally appeared in the August/September 2018 issue of Morningstar magazine. Read the full article.