This is the fourth post in a series on my favorite mutual funds. Over the past three weeks we discussed my favorite domestic equity mutual funds, my foreign stock fund picks and then which bond funds I like to use on behalf of clients.. This week, we’ll turn our attention to TIPS and mortgage-backed securities funds.
Inflation Protected Securities (TIPS)
The U.S. government has only been issuing TIPS since 1997 and I have been investing in this category since 1999. In the beginning there were few funds in this space. Today, there are several good choices. My two favorites are Vanguard Inflation Protected Securities (VIPSX) and Delaware Protected Bond I (DIPIX).
The Vanguard fund began in 2000 and, until recently, was managed by a team which included fixed-income aficionado Ken Volpert. However, about a year ago, co-manager Gemma Wright-Casparius took the helm. As with all Vanguard funds, the expense ratio for VIPSX is modest, at only 0.20%. Since 2002, the fund’s performance has fallen out of the top half of its Morningstar peer group only once (2008), when it barely fell below the midpoint. This fund has been a consistent out-performer for a number of years. However, we’ll have to wait and see how the new manager performs.
Delaware’s Inflation Protected Bond fund has an excellent risk/return profile. For example, DIPIX’s low standard deviation puts it in the bottom of its Morningstar category for the trailing three- and five-year periods while its returns have been at average or better. In addition, management has been in place for just over five years and the fund has been in the top quartile of its category in five of the past seven years.