Why I am exiting Fidelity Inflation Protect Bond (FINPX)

I bought into FINPX on Dec. 8, 2008, when the price per share was $10.25. I am selling today when the price is $12.16. This is a tax-free account. That is a capital gain of 18.6% over three years, above and beyond the regular interest distributions.

Honestly, I did expect some capital gain in this fund, because I was buying in the heart of the U.S. financial crisis. But in reality, the capital gain is the reason I am selling. My feeling is that TIPS yields are well below the historical norm, and eventually the trend will return to normal. This is the case with all Treasury issues, not just TIPS. This is the last TIPS mutual fund I own. I don’t own a TIPS ETF.

(As I have noted before, I do advocate buying and holding TIPS to maturity, either through TreasuryDirect.gov or in a tax-free retirement account. I am not dismissing TIPS as an investment, quite the contrary, I still a large portion of my portfolio in TIPS and I Bonds. But I feel TIPS mutual funds and ETFs are reaching a risky point.)

So, where did I reinvest this money? In another ‘boring’ investment, Fidelity Total Bond Market (FTBFX). The other fund I considered was Fidelity Intermediate Bond (FTHRX), which tracks very close to the Total Bond Market.

Here is a chart of the performance of these three funds over the last two years:

fidelity bond fundsAmazingly, all three funds have a very similar capital return (and a very nice return) over the last two years. But the FINPX TIPS fund shows much stronger swings, and is on a very strong upswing right now. That is why I am exiting.

TIPS on a roll

I prefer the boredom of the Total Bond Fund. Boring is good.

The TIPS fund is booming with the current surge in Treasury securities. I think that will pass. When it does pass, and TIPS yields return to a more historical level, I would be fine with returning to FINPX.

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8 Responses to Why I am exiting Fidelity Inflation Protect Bond (FINPX)

  1. Stock Tips says:

    I like your post and it really gives an outstanding idea that is very helpful for all the people on the web. Thanks for sharing.
    Stock Tips

  2. Jake R. says:

    Don’t you think we’re going to have inflation at some point with all the QE??

    • tipswatch says:

      Jake, yes I do think inflation of some sort will result out of the QEs, especially if the dollar weakens dramatically. But I think an improving economy, real job and wage growth, and a healthy housing market would be needed to trigger high inflation. At this point that is some years in the future?

  3. Matt says:

    I’m trying to decide whether I should replace FINPX with FTBFX (or BND if I do it in my 401k). I noticed this post and it started swaying me to replace. Then I looked to see how FINPX and FTBFX had done since the post was written.

    http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1358526035073&chddm=157244&cmpto=MUTF:FTBFX;NYSEARCA:BND&cmptdms=0;0&q=MUTF:FINPX&&ei=z3X5UIiPCMTo0QHUTQ

    It looks like FINPX is just clobbering FTBFX from last May to now (just under 10% gain vs just under 0% gain). I’m a bit of a newb in investing so maybe I just got lucky, maybe I should be dropping FINPX now since it is so high, but it’s also possible something has played out differently than you were expecting and FINPX is a good choice again. Thanks for the post, I’d love to hear a followup about whether your thinking has changed or stayed the same to help guide my own rebalancing choices.

  4. tipswatch says:

    Matt, you’ve had excellent fortune with FINPX and this blog from 2011 shows how lousy I can be as a forecaster. (Bill Gross fell into the same trap, not trusting Treasuries just before massive Federal Reserve manipulation began.) Four rounds of manipulation later, TIPS holders have benefited from super-low rates on traditional Treasuries, along with fear of inflation, which increases demand for TIPS. So it’s been a ‘perfect positive storm’ for TIPS. Can this continue? I don’t think so, but I was wrong back in May 2011, so my opinion is just my opinion. I still use Vanguard’s Total Bond Market as my core bond mutual fund.

  5. Matt says:

    Wow, thanks for the speedy reply. I think I’m going to drop my FINPX but I will probably buy some VB to balance it out. I just did an assessment on my investments and I only have 7.25% in bonds right now (I’m 30 and risky but still this seems low). I feel like I’ll add 5% in VB.

    One other thing I’ve been struggling with is whether I should include my cash on hand and home equity in my percent calculations. I have a significant amount of equity which makes me feel like I can hold lower bonds (I get that real estate is different than bonds, but I think it is a semi-similar safe harbor), but I haven’t read a lot about this.

  6. tipswatch says:

    Matt, 7.25% in bonds at age 30 sounds OK, if you can tolerate the short-term volatility of the stock market, which ends up being less volatile in the long term. I personally don’t count my home equity as part of my net worth. My view is that house isn’t an asset – it’s a liability (taxes, maintenance, etc.) until you sell it. But having a lot of equity is a great thing, and it does mean you can take more risk in your investments. You mentioned VB, but I think you mean BND, which is the Vanguard Total Bond Market ETF.

  7. Pingback: Monday: More blood in the streets for TIPS | Treasury Inflation-Protected Securities

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