Key Takeaways
- With the Fed holding rates steady and CPI remaining elevated at 2.4%, advisors are pivoting toward strategies designed to withstand sticky inflation and “higher for longer” benchmark rates.
- Experts suggest modern portfolios are underweight real assets.
- Midstream assets provide a unique dual benefit: annual inflation-adjusted contracts that “cut off tail risk” and high yields that remain largely independent of interest rate volatility.
Financial advisors are confronting a bleak reality: The journey to the Federal Reserve’s 2% inflation target is turning out to be both long and uneven, due to stubbornly high inflation. Citing elevated uncertainty in the economic outlook, the Fed held interest rates steady during its March meeting, signaling that it needs to see price pressures cool before committing to further rate cuts.
With headline CPI remaining somewhat elevated at 2.4%, several catalysts threaten to push prices higher. Renewed energy cost pressures, Middle East volatility, and a significant 1.3% jump in February import prices — the largest in four years — have introduced fresh uncertainty into the policy discussion. For advisors, this environment demands strategies that have demonstrated an ability to thrive in sticky inflation and high benchmark rates.
The Case for Exposure to Real Assets
John Davi, CEO and CIO of Astoria Portfolio Advisors, sat down with VettaFi at Exchange, emphasizing that modern portfolios are dangerously underweight “hard” or “physical” real assets. While many investors remain over-indexed to intangible tech giants, Davi utilizes the Alerian MLP ETF (AMLP ) to access U.S. energy infrastructure. By focusing on tangible businesses like pipelines and storage facilities that provide essential services and generate fee-based cash flows, AMLP may act as a critical cushion when traditional 60/40 portfolios struggle.
This year is providing a prime example. Year-to-date through March 25, AMLP is up over 15%, while the S&P 500 is down 3.4% and the Bloomberg Agg bond benchmark is flat.
Importantly, many midstream contracts include annual inflation adjustments, allowing these long-lived assets to effectively navigate periods of sticky inflation. As Davi noted, incorporating AMLP into his firm’s real asset separately managed accounts (SMAs) helps “cut off the left tail risk” during periods of high volatility.
Beyond the inflation hedge, midstream offers a compelling yield component. As of March 25, AMLP’s underlying index — the Alerian MLP Infrastructure Index (AMZI) — is yielding 6.8%. Furthermore, MLP income tends to be more stable and is independent of the interest rate environment.
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