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With U.S. inflation at a 40-year high, here’s how one fund manager is navigating rising prices

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June’s inflation figures are out — and they don’t look pretty. U.S. consumer prices were hotter than expected, surging to a more than 40-year high. Those rising prices are however unlikely to cool to the Fed’s 2% target — and look set to remain so for the next few years, Ben Kirby, co-head of investments at Thornburg Investment Management, told CNBC’s “Squawk Box Asia” on Tuesday. “Inflation will be volatile and generally higher over the next few years than in the past decade; it will oscillate and whipsaw without a clear trend line,” added Kirby, co-portfolio manager of the $10 billion Thornburg Investment Income Builder Fund. Given the uncertainty around rising prices, Kirby believes investors should seek to have a balanced portfolio. He tells CNBC some of the “international and high quality” companies that he holds in the Thornburg Investment Income Builder Fund. Stock picks One of Kirby’s top picks is Visa . He described Visa as an “inflation beneficiary,” benefiting from higher prices for goods and services that consumers use their credit cards for. The company is expected to benefit from a rebound in travel as pandemic restrictions ease, with consumers charging their “relatively expensive” airline tickets to payment companies such as Visa, according to Kirby. Kirby also likes French telco Orange S.A. as a defensive bet that’s “attractively valued” — as opposed to other more expensive defensive plays. “So many defensive companies today are trading at valuations that are significantly above the market and significantly above their historical premium to the market. So, investors are paying up for defense in many countries and in many sectors and many stocks,” he said. Orange in contrast, trades at a single-digit price-to-earnings (P/E) ratio with a “really attractive” dividend yield and growth prospects, Kirby added. The stock has a trailing 12-month P/E ratio of 8.9 — the lowest among its key competitors, according to FactSet data. The stock also has a 5-year average dividend yield of 5.3%. Biopharmaceutical firm AstraZeneca is another stock that Kirby likes. He described the company as “top-tier,” with double-digit sales growth and improving cash flow generation at a relatively attractive valuation. Kirby said the firm boasts a pipeline of 12 potential “blockbusters” — four of which are in the oncology division. “We think those are going to be big, big drugs for the company and drive growth for the next few years,” he said. Read more These global stocks have a track record of earnings growth — and analysts love them A recession is a given, one investment advisor says — and reveals his top stocks to beat it ‘Outright cheap’: JPMorgan says there’s a tactical buying opportunity in these global stocks Banking giant Citigroup is another stock in the fund’s portfolio. Kirby believes the stock is cheap and has “ample opportunity” for dividend hikes in the near term as the bank seeks to raise its payout ratio on normalized earnings up to its pre-pandemic level. The company is also well-positioned to pursue “attractive and differentiated” growth on the back of higher revenues from rising interest rates and credit card growth in the U.S., he added. The Thornburg Investment Income Builder Fund had $11.2 billion in assets under management as of May. 31. In addition to Orange, the fund’s top holdings also include French energy firm TotalEnergies , semiconductor giants Broadcom and Taiwan Semiconductor Manufacturing Company , as well as British telco Vodafone . When will inflation peak? The soaring energy and food prices have made it hard to predict with any certainty when inflationary pressure will ease, but Kirby believes it may hit a peak in the next one to three months . “I think there’s a lot of pressure for inflation to decelerate later into the year, [such as] fiscal tightening, monetary tightening, a strong dollar and commodity prices rolling over weak consumers,” he said.

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