The Fed would have us believe that inflation is under control and will remain that way. World food prices have a different idea and even Mr. Bernanke acknowledges that inflation is now impacting emerging markets in a big way. So it stands to reason that mutual fund companies would introduce more products to address the inflation concern.

One existing fund is preparing to change its investing personality to more directly target inflationary pressures. The Hartford Tax-Free National Fund (HTNAX) will be renamed The Hartford Municipal Real Return Fund effective March 1, 2011.  This fund will continue to invest in municipal bonds and other assets that provide income that is not subject to federal income taxes. However, it will not add inflation-linked derivatives and securities to its portfolio to hedge the sensitivity of its municipal bond portfolio to changes in inflation and inflation expectations. In other words, it wants look more like what the industry calls a real return fund.

The ING Floating Rate Fund (IFRAX) is relatively new and is marketed to investors who are looking to hedge against a future rise in interest rates. (Presumably, inflation and increased interest rates will go hand-in-hand. At least thats the way it is supposed to work.)  This fund carries out this method by investing in ultra-short duration floating rate loans that reset every 30, 60 or 90 days. Thus, the fund is less affected by rising interest rates compared to other fixed income funds. Im not so sure that this strategy can even stay even with high inflation, so I would not call this a true real-return fund.

There are other real-return funds available from a variety of fund companies. Most mix in a variety of assets that historically have increased in value in coordination with inflation, e.g. commodities. I own one of these, the PowerShares DB Commodity Index Tracking ETF (DBC). This fund is up 28% in the last six months, if that tells you anything about recent trends in inflation concerns and commodity prices.

My other primary inflation-fighting assets are I-Bonds, TIPS, and a TIPS fund (VIPSX).  The latter fund has been on a general negative trend of late but I think that is about to change.

What are you investing in to address inflation? Or is that not a concern of yours?

Comments

RICH ANSELMO says

If you believe long term rates will continue to rise, investing in a TIP mutual fund or ETF may not be a good idea. The NAV would decline as has been the case for 4 months now. Altho some of the decline would be offset by rising yield, there may be no gain or even a loss unless inflation really soared. VIPSX is best when rates are falling and inflation is rising.

I prefer a rising rate fund or ETF. Symbol PPR is in a rising trend and has a yield of 5% and pays monthly. VIPSX is in a declining trend has a yield only of 2.66%. The 30yr TIP auctioned today will likely be cheaper a few months from now, IMO.

Accidental Retiree says

I read your blogs about TIPS but dont have any experience of buying them direct, although I do have a very small stake in a TIPS fund in a 403(b) plan.

I understand that its best to keep TIPS inside retirement accounts; however, since I no longer have a chance to accumulate retirement funds, I have to look at other options.

I am wondering whether converting some IRA funds to Roth IRAs and then buying TIPS in those newly converted Roths would be a good way to go? Comments?