Morningstar Magazine - August/September 2018 - 80

Ten Questions

Vanguard's Gemma Wright-Casparius
on TIPS and travel.
Laura Lallos, Morningstar magazine's managing
editor, interviewed Wright-Casparius in June.
1. What is Vanguard's inflation outlook?

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.
2. What do you expect from the Fed?

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.
3. Where are the best opportunities today?

Gemma Wright-Casparius is 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. She has worked in investment
management since 1980 and joined
Vanguard in 2011. Wright-Casparius has a BBA
and MBA from Baruch College of The City
University of New York.

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.

Morningstar August/September 2018

6. What's the best advice you've received?

Challenge yourself both personally and professionally, don't be afraid to take risk, and remember that
out of chaos comes order.
7. Where would you be working now, if not within

financial services?

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.
8. What do you enjoy doing when you aren't investing?

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

4. Are there still opportunities in credit?

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.
5. How will rising rates affect investors in Vanguard
Inflation-Protected Securities?

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.

9. What book are you recommending these days?

I have read, reread, and widely recommended
Total Leadership by Stewart D. Friedman to
those struggling with finding balance or meaning
in their lives.
10. Where did you go on your last vacation?

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!

Table of Contents for the Digital Edition of Morningstar Magazine - August/September 2018