TIPS a bit tippy? A frank assessment from a TIPS mutual fund manager

I have been pointing out (practically pounding the table) that mutual funds and ETFs investing in Treasury Inflation-Protected Securites are near five-year highs and maybe a little risky. While I endorse buying and holding TIPS at TreasuryDirect.gov, for bond mutual funds right now I prefer intermediate- or shorter-term funds that include corporate bonds. Example: Vanguard Total Bond Fund (VBMFX).

Here’s someone who sort of agrees with me: Bill Irving, manager of the Fidelity Inflation-Protected Bond Fund (FINPX). In the fund’s annual report dated March 31, Irving provides an unusually frank assessment of the value of TIPS:

“On a short-term basis, TIPS’ performance may be hamstrung by the fact that their yields are so low. It’s almost inconceivable that TIPS yields will fall much below current levels. At the end of the period, the yield on a 10-year TIPS was roughly 0.95%, well below its pre-financial crisis 2.00% average. On a relative basis, TIPS’ potential outperformance of Treasuries could be limited because inflation expecations are already near the upper end of the Federal Reserve’s comfort zone.”

Irving also says:

“In my view, it will be difficult for TIPS to perform as well – either on an absolute basis or relative to plain-vanilla Treasuries – in the near term as they did during the last 11 months.”

Since Irving wrote that, the 10-year TIPS base yield has fallen to about 0.65%.

Here is a one-year chart for the FINPX fund (blue) versus Vanguard Total Bond (red):

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3 Responses to TIPS a bit tippy? A frank assessment from a TIPS mutual fund manager

  1. Pingback: Threat to TIPS great exaggerated? | Treasury Inflation-Protected Securities

  2. Pingback: Threat to TIPS greatly exaggerated? | Treasury Inflation-Protected Securities

  3. Pingback: Frank talk from Fidelity about TIPS | Treasury Inflation-Protected Securities

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