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Readers know my stance on TIPS through the various articles over the last one year. FWIW, I still hold TIPS in my fixed income portfolio. In any case, WSJ today has an article I wanted to share:
"Inflation-Protection Funds Struggle to Perform as Advertised Disparate strategies trading bonds, derivatives and stocks offer varied returns"
Thanks Mark, but not yet. Friday or Saturday, one may try: using your search type: BNN and then Inflation-Protection Funds Struggle to Perform as Advertised Canada may let you peek.
One thing to know is that when you get instant ‘Subscribe here / subscribe now’ popups or similar , just click x and close them; I had more than one, but when I got rid of them , carefully and patiently , there was the article in full , albeit pocked with house ads
Blocked me this morning. I was able to hear the teaser with the computer voice. Just tried again, and it let me in. Not much new that we might not have suspected. Stinky poopy day, today. Stuff happens. I'll stick by my picks. I'm not married to them, but blue skies will appear again.....
Thanks @davidrmoran Seems I've tried that before without any positive result. But 'x' ing does allow for viewing. Apologies, @Mark for not being in the grove with this.
We're just pricing in the 50 basis point FED hit next week. My crystal ball doesn't see anything good happening for a while. Don't fight the FED. Isn't that the motto?
SCHW down 12.76% today. Part of a big sell off in financials. Re +.50% rate increase. Let’s wait and see. This Fed “toes the line” about as well as a drunken sailor. (Admittedly, they’ve been slip-sliding into the gutter lately.)
We're just pricing in the 50 basis point FED hit next week. My crystal ball doesn't see anything good happening for a while. Don't fight the FED. Isn't that the motto?
No argument here. Interesting guest just now on Bloomberg tv. From QuillIntelligence, out of Dallas. Danielle DeMartino Booth. She says, "YES! Don't fight the Fed, but that's exactly what the markets are doing." She sounds like she knows a thing or two. Nothing about what she said on camera felt "canned" to me.
The article starts with the hope vs reality. Too many inflation products have NOT worked out for investors. Either the products are poorly constructed or there was too much duration risk. The same inflation which benefits TIPS also makes the Fed hawkish to raise interest rates and hurts TIPS because of duration risk. It goes into why IVOL failed. It talks about Kinetics Inflation fund failed to deliver. It mentions about how a Simplify fund which trades inflation derivatives has won big. It mentions about the steady outflows from all kinds of inflation funds. Article ends with some equity fund manager claiming how his investors have solved the inflation puzzle by investing in "equity subindustry funds, such as the firm’s food and beverage, aerospace and defense, as well as property and casualty insurance products".
The good things about journalism is you can write about the past with detachment.
Nowhere is there a mention that inflation is a portfolio risk that has not gone away. To propose some equity holdings as an inflation hedge is irresponsible. All equities are a hedge against runaway inflation. Just ask Venezuelan and Argentine investors. The problem is that we are not one of those countries. We try and solve problems, and even when our policy makers dont hit the mark, they come pretty damn close.
Rational investors don't get carried away with extremes. They diversify thoughtfully. Sometimes the best made plans don't work right away. We should struggle and try to figure out why that's the case. We might learn something about what to do next.
If the idea is to keep up with inflation (CPI), shorter-term (=< 5 yrs) TIPS held to maturity would do that approximately. Then, roll them over and over. Make a ladder. Chart below shows CPI vs 2 common TIPS funds, ST and IT/LT; default timeframe is 1 yr but that can be changed.
This suggestion by YBB is very wise indeed. Keep TIPS maturities <= 5 years. I frankly like the idea. So why go longer maturities? No two portfolios are the same. There are a 1000 ways to make potatoes in India. We must all solve for what works for us.
Incidentally I have been listening to a lot of Myron Scholes lately on this podcast:
This podcast is available online for free and I listen to it on my phone while walking. He speaks fast and there are many complex topics but he is dealing right in the heart of all the topics related to portfolio construction. Listening to it is humbling because there is just so much to it even for the sophisticated investors.
None of this is supposed to be easy. But I do agree that YBB's suggestion is a step in the direction to make it easier.
The free link in Mark's first post worked for me. A "Subscribe Now" pop-up message was displayed. I clicked the "X" to close message and entire article was available to read.
It is days like today that justify holding longer term bond positions. That they can serve as a hedge while also providing some inflation + returns is two gifts packed in one. This negative correlation with equities does not always work so a huge dose of humility is required.
Got through paywall, but article, to me , demonstrates that WSJ is a shadow of it's formal self. Little discussion of why IVOL and Kinetics funds have not worked and why PFIX has (although it is down YTD and today).
PFIX and IVOL demonstrate again why investing is complicated. I could not understand IVOL discussions of it's strategy, although it was recommended by people I trust. PFIX I pretty much understand, thanks to Simplify's Harley Bassman's monthly discussions.
A lot of this is well over my head, but I don't try to invest in that stuff. Nor do I take large positions.
A simple defense against inflation would also be very short terms bonds, floating rate treasuries (USFR) and/or treasury bills and inverse treasury ETFs.
TUR is a great example of why equities work in hyperinflation countries.
Comments
Friday or Saturday, one may try: using your search type: BNN and then Inflation-Protection Funds Struggle to Perform as Advertised
Canada may let you peek.
Copy Free Link
One thing to know is that when you get instant ‘Subscribe here / subscribe now’ popups or similar , just click x and close them; I had more than one, but when I got rid of them , carefully and patiently , there was the article in full , albeit pocked with house ads
but I was able to read the entire thing
The good things about journalism is you can write about the past with detachment.
Nowhere is there a mention that inflation is a portfolio risk that has not gone away. To propose some equity holdings as an inflation hedge is irresponsible. All equities are a hedge against runaway inflation. Just ask Venezuelan and Argentine investors. The problem is that we are not one of those countries. We try and solve problems, and even when our policy makers dont hit the mark, they come pretty damn close.
Rational investors don't get carried away with extremes. They diversify thoughtfully. Sometimes the best made plans don't work right away. We should struggle and try to figure out why that's the case. We might learn something about what to do next.
Using funds introduces rate and duration factors.
https://stockcharts.com/h-perf/ui?s=VTIP&compare=$$CPI,TIP&id=p06767927681
Incidentally I have been listening to a lot of Myron Scholes lately on this podcast:
https://www.janushenderson.com/en-us/advisor/bio/myron-scholes-phd/
This podcast is available online for free and I listen to it on my phone while walking. He speaks fast and there are many complex topics but he is dealing right in the heart of all the topics related to portfolio construction. Listening to it is humbling because there is just so much to it even for the sophisticated investors.
None of this is supposed to be easy. But I do agree that YBB's suggestion is a step in the direction to make it easier.
A "Subscribe Now" pop-up message was displayed.
I clicked the "X" to close message and entire article was available to read.
PFIX and IVOL demonstrate again why investing is complicated. I could not understand IVOL discussions of it's strategy, although it was recommended by people I trust. PFIX I pretty much understand, thanks to Simplify's Harley Bassman's monthly discussions.
https://www.convexitymaven.com/2021-xx/
A lot of this is well over my head, but I don't try to invest in that stuff. Nor do I take large positions.
A simple defense against inflation would also be very short terms bonds, floating rate treasuries (USFR) and/or treasury bills and inverse treasury ETFs.
TUR is a great example of why equities work in hyperinflation countries.
Yes, 2-yr FRNs are also good. They pay 3-mo T-Bill rate (adjusted weekly) + spread (fixed at purchase). Some brokers may require phone calls (vs online orders)
https://www.treasurydirect.gov/marketable-securities/floating-rate-notes/