First, we select the top trending category from more than 200 categories listed on MutualFunds.com based on the percentage increase in monthly viewership. From the top trending category, we select the top three funds with the highest one-year trailing total returns. To ensure the quality and staying power of funds, we only look at mutual funds with a minimum of $250 million in assets and a track record of at least one year. We also remove mutual funds that are closed to new investors and not available for investment outside registered accounts, such as retirement or 529 accounts.
In this week’s edition, we analyze the top three Treasury Inflation-Protected Securities (TIPS) funds. These funds invest in TIPS bonds and other securities that provide protection against the effects of inflation. Often, these funds also aim to have a low duration, which mitigates the effects of rising interest rates on fixed income holdings.
TIPS and other inflation-protected securities have become increasingly in demand as consumer prices continue to rise. The Consumer Price Index rose 4.2% in April 2021, exceeding economists’ forecasts of a 3.8% increase and marking its fastest growth rate since 2008. While the Federal Reserve sees the rise as temporary and unlikely to influence policy, many investors have been bidding up inflation-protected securities as a way to hedge their portfolios.
Our breakdown of each fund includes key aspects, such as one-year performance, fund expenses, investment style, and management teams, to give you an overview of how these funds hold up against their peers.
Be sure to check out the TIPS Fund page to find out more about other funds in this category as well.
Trending Funds
1. Lord Abbett Inflation Focused Fund (LIFAX)
The top fund on our list this week is the Lord Abbett Inflation Focused Fund (LIFAX). It generated a solid 26.55% trailing one-year return with a 0.70% expense ratio and a 3.32% yield, making it the best performing, highest yielding, and lowest cost fund on the list.
The fund’s strategy is to use inflation-linked derivatives with a portfolio of fixed income securities to deliver total returns that exceed the rate of inflation in the U.S. over a full inflation cycle and current income. Notably, the strategy has historically generated one of the highest income streams in its category with one-third the duration of the average TIPS-based portfolio.
The fund is managed through a collaboration among more than 40 investment professionals from portfolio management, credit research, and trading backgrounds. Hyun Lee, CFA is the fund’s lead manager with a tenure of just over eight years.
The fund’s portfolio is primarily concentrated in investment-grade corporate bonds (35%), agency backed securities (19.1%), commercial mortgage backed securities (13.8%), high-yield corporate bonds (13.7%), and U.S. government bonds (9.6%). The fund’s credit distribution includes 32.8% BBB-rated securities, 22.5% AAA-rated securities, and 19% sub-BBB-rated securities with 1,159 securities in total.
Source: Barchart.com
Learn more about different portfolio management concepts here.
2. SEI Multi-Asset Real Return Fund (SEIAX)
The number two fund on our list this week is the SEI Multi-Asset Real Return Fund (SEIAX). The fund delivered a solid 15.72% trailing one-year total return with a 0.88% expense ratio and a 2.21% yield, making it the second highest yielding fund on the list.
The fund’s strategy is to invest in a broad range of asset classes, including fixed income, equity securities, and commodity-linked instruments, to maximize real returns or total returns that exceed the rate of inflation over a full market cycle. In addition, the fund is permitted to invest in both U.S. and non-U.S. dollar-denominated securities.
The fund is managed by a team of seven individuals, including Steven Treftz, Russell Shtern, and Jacqueline Hurley, who have an average tenure of three years. Mr. Treftz has the longest tenure at over eight years and is responsible for the oversight, monitoring, and manager selection for all of SEI’s multi-asset and short duration strategies.
The fund’s portfolio consists of government bonds (65.4%), corporate bonds (14.7%), and securitizations (14.5%). In terms of credit quality, 78% of the portfolio is concentrated in AAA-rated bonds, 11% consists of BBB-rated bonds, and the remainder is mixed largely between AA- and BB-rated bonds, providing it with one of the strongest credit profiles in the category.
Source: Barchart.com
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3. Eaton Vance Short Duration Inflation Protected Fund (EARRX)
The third place on the list belongs to the Eaton Vance Short Duration Inflation Protected Fund (EARRX). The fund generated a robust 14.08% trailing one-year return with a 0.90% expense ratio and a 1.84% yield, making it the highest cost fund on the list.
The fund’s strategy is to invest in short- and intermediate-term TIPS, as well as floating-rate loans, asset-backed securities, and commercial mortgage-backed securities where interest payments on the floating-rate loans are swapped for those based on changes in the CPI. The goal is to maximize real returns with a duration limited to 3.5 years or less.
The fund is co-managed by Brian Ellis, VP of Eaton Vance Management, who has been with the fund since 2019 and holds CFA and FSA designations, and Jason DesLauriers, VP of Eaton Vance Management, who has been with the fund since 2019 and holds a CFA designation.
The fund’s portfolio is concentrated in U.S. Treasuries (TIPS) at about 61% of the portfolio with floating-rate loans and asset-backed securities accounting for 27% and 4% of the portfolio, respectively. Approximately 64% of the portfolio is concentrated in AAA-rated securities, but 14% of the portfolio is in B-rated securities and 11% is in BB-rated securities.
Source: Barchart.com
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The Bottom Line
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Note: Trailing one-year returns (daily) as of May 7, 2021.