M*'s Top Picks for Inflation Protection

Old_Skeet

Inflation protection has been a recent topic on the board. I have linked below an article from M* and what they have to say on the subject.

"Surveying the fund & ETF landscape, from direct hedges like TIPS to indirect inflation-fighting plays such as floating rate loans and commodities" are covered in the article.

http://news.morningstar.com/articlenet/article.aspx?id=783695

In addition, I have linked the M* fund report on PRDAX as it is one of the more diversified inflation fighting funds that M* writes about in the article.

http://www.morningstar.com/funds/XNAS/PRDAX/quote.html

After reading the article and study of the above fund along with my review of a recent Xray report of my portfolio I have discovered that about a good third of my portfolio in some way offers inflation protection.

Perhaps, you will find the article of benefit as I did.

I wish all ... "Good Investing."

Old_Skeet

VintageFreak

I look at PRDAX and see its 1-star rating. I start thinking, maybe it is "timing" buy now. Then I see "risk" bar and it is all red.

I have long wondered how unbiased M* research is and especially when I see load funds recommended.

I own a smattering GLRBX in the same category, and have been contemplating adding to it. Now I think I will. Just offering an alternative for comparison.

Old_Skeet

Hi VintageFreak,

Thanks for making comment.

I noticed some concerns too. M* list this fund as an allocation fund and the sectors that it is heavily invested in are mostly the inflation fighters and have for the most part been out of favor in our low inflation environment. With this, I am not surprised at its poor showing as an allocation fund. Perhaps, as inflation becomes a bigger issue with investors it's performance will improve as investors find greater favor in the inflation fighting sectors. I have no plans to purchase this fund; but, simply used it's positioning as a reference in the inflation study of my own portfolio. And, I thought others might as well.

The fund you reference for comparison, GLRBX, which is a fine allocation fund, is not quite the same as PRDAX when it comes to inflation protection as it is not as heavily as weighted towards real assets and other inflation protection securities as PRDAX.

Skeet

Nick_de_Peyster

High inflation is a great challenge. But with demographics and debt levels the way they are, is high inflation likely to be a problem soon?

Nick de Peyster
http://undervaluedstocks.info/

Ted

@MFO Members: I don't see inflation as any problem in 2017. Next year is all about equities, equities and more equities. The only question will it be large, mid, or small cap equities.
Rggards,
Ted

Old_Skeet

Hi @Ted,

Thanks for making comment.

I tend to agree with you about inflation not being of much concern through much of 2017. But, I'm thinking now might a good time to start planning for inflation. At least that is what I'm doing within my own portfolio. Thus, I have begun a study of what I already owned and what I might wish to add before these inflation fightiing assets become the darlings of many investors. I'm wanting to do this before these asset classes get run up in price. Look what recently happened with financials and small caps. Not, presently buying more of these asset classes.

But, I also understand each of us have different risk tolerances, needs and goals.

I'm thinking there are some asset classes that I feel can serve multiple purposes within a portfolio and these are the ones I'll center my focus on more so than pure inflation protection securities. With this, I'm lookings at adding to my materials, energy and industrial sector holdings as I have ample coverage in utilities and real estate.

Skeet

Old_Skeet

Hi @Nick_de_Peyster,

Thanks for making comment and raising questions about inflation.

As Ted points out I'm thinking for most of 2017 will be good for stocks.

Skeet

bee

From a recent Jeff Saut (Raymond James) article I reference this passage and a possible endorsement for equity inflation in 2017:

Our sense is the new administration will not be able to get the corporate tax rate down to 15%, but even at a 25% rate, it implies an additional $13.10 to the S&P 500’s bottom up operating earnings number ($1.31 x 10 = $13.10). Using Bob’s same math produces an earnings estimate of $144.10, and at 17 times earnings, it renders a price objective of roughly 2450 for the S&P 500.

Article:
Serenity now?

Old_Skeet

Hi @bee,

Thanks for making comment.

Let's hope that the anticipated tax cut and that the earnings numbers that Mr. Saut projects come to be. Otherwise, this market will be extremely overbought. I read Mr. Saut's commentary weekly; and, I have followed him for a good number of years finding, for the most part, that he makes good calls.

I'm wondering what's going to happen (concerning interest rates) when the Fed's meets next week? For now, the markets don't seem to concerned about it as there must be a lot of short covering along with some program trading which are helping to drive the markets higher. The year ending TTM (reported) earnings, that I follow, on the 500 Index are being projected by S&P at $99.77. At current valuation this equates to a TTM P/E Ratio just short of 23.

For now, I'm not putting new money to work as I beleive a pull back will be coming once this buying frenzy exhaust itself. In addition, what if the Fed hikes more than the expected quarter of a point?

Skeet

Derf

Old_Skeet: FWIW, I'm thinking my Market has priced the
rate increase in already. Last month VG Retirement Income went down almost 14 % Nav 5.1 down to 4.4.
Derf

VintageFreak

I switched into Vanguards Short Term Inflation funds from its regular fund couple of years back. Was going well for a while, but not this year. Oh well...that's the fund that's taking my slice of "inflation protection" money.

Now regarding VTINX. Why not just buy this one if its gone down so much. Sounds like good lower risk bet next to cash. Yeah?