Vanguard Inflation-Protected Securities Fund

Scorecard
4 / 5 Stars
Lipper
5 5 2 5 2
Zacks Investment Research
5 (Strong Sell)
Standard & Poor's
---
TheStreet.com
E+ (Sell)

U.S. News evaluated 52 Inflation-Protected Bond Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Note: Profile written for different share class.

Performance

The fund has returned -5.98 percent over the past year, 3.97 percent over the past three years, 6.14 percent over the past five years, and 4.63 percent over the past decade.

Trailing Returns Updated 02.28.2014
Year to date 2.6%
1 Year -6.0%
3 Years (Annualized) 4.0%
5 Years (Annualized) 6.1%
10 Years (Annualized) 4.6%

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Summary

When investing, a little protection can go a long way. In compiling its conservative portfolio of inflation-fighting treasury bonds, Vanguard Inflation-Protected Securities takes that mantra to heart.

As of March 05, 2014, the fund has assets totaling $26.55 billion. Its portfolio consists almost exclusively of U.S. treasury inflation-protected securities (TIPS). 

Even as fears of inflation give way to concerns about deflation, this fund has performed quite well. In 2010, its success has been due in part to the fact that TIPS, which are commonly viewed as a safe haven, have been a popular destination for jittery investors. Still, in the near term--as well as in the long term--the fund's success will depend on the rate of inflation. TIPS pay fixed interest rates, but the bond's principal is tied to inflation as measured by the consumer price index. The more inflation rises, the higher the principal goes. In other words, the bonds allow investors to keep pace with rising prices. As a result, investors often use TIPS to make short- and long-term bets on inflation or to provide some cover in the event of unforeseen inflationary pressures. On the other hand, TIPS lag behind other bonds during times of deflation. Still, there is some protection against deflation built into TIPS. If there is net deflation at the time of maturity, investors are guaranteed to at least get back their original investment. The fund has returned -5.98 percent over the past year and 3.97 percent over the past three years.

Historically, the fund has put up a solid performance, and it boasts a low expense ratio. Says Morningstar, "Because we recommend that investors use inflation-protected bond funds as part of a longer-term asset allocation, the fund's fee advantage should prove even more valuable over the longer haul." But as is the case with all funds that invest in TIPS, this one is cyclical. Investors tend to bulk up on TIPS when they fear inflation and unload them when the perceived threat passes. The fund has returned 6.14 percent over the past five years.

Investment Strategy

The fund invests exclusively in investment-grade bonds, the vast majority of which are TIPS. It looks to protect investors against inflation and realize long-term profits. 

Role in Portfolio

Morningstar calls it a "supporting player."

Management

Managers John Hollyer and Kenneth Volpert are both seasoned Vanguard employees. 

Fees

Vanguard Inflation-Protected Securities Fund has an expense ratio of 0.07 percent.

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Risk

This fund helps hedge against the risk of inflation.

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