All long term investors need core holdings that will protect against the damaging effects of inflation. Traditionally we have been told that equities in general are the answer to the inflation problem. Now we are not so sure. Based on this doubt, mutual fund companies continue to introduce new products specifically intended to provide inflation-protected growth.
The floating rate loan component of this fund is interesting and somewhat unique for a “real return” investment. The rates on these commercial loans adjust with prevailing interest rates, which should generally track inflation. The only problem is that most floating rate loans are made to borrowers considered to be higher risk.
The fund’s expense ratio is 0.73% and the return has been flat since its the fund was started in 2005.
A second fund intended to be an inflation-fighter is the Pimco All Asset fund (PASDX). This is a peculiar “fund of funds” product without a clearly defined asset allocation. Apparently, the fund managers run models to determine which of the various Pimco funds they should invest in and in what allocations. We don’t know what those models are, of course. Their stated goal in selecting funds and allocations is to beat the rate of inflation by five percentage points. (Don’t we wish that could be guaranteed.) The fund hasn’t quite achieved that goal but has returned 6.2% annually since 2003. The fund is expensive with a 1.45% expense ratio. That’s one of the big problems with managed funds.
If inflation-protected investing is a topic of interest to you (and it probably should be), check out these articles on investing in TIPS and couch potato portfolios. In the latter article, take note of the Permanent Portfolio fund (PRPFX).
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