Bogleheads:
According to Vanguard, their Inflation-Protected Securities fund (VIPSX) had a 3-Month LOSS of -0.79%
https://personal.vanguard.com/us/funds/ ... =INT#tab=1
Vanguard recently introduced a new short-term TIPS fund (VTAPX). According to this link, it had a 3-Month GAIN of +0.66%:
https://personal.vanguard.com/us/funds/ ... =INT#tab=1
Can anyone explain why one TIPS fund went DOWN while the other TIPS fund went UP?
Thank you and best wishes.
Taylor
Can you explain TIPS (VIPSX loss vs. VTAPX gain) ?
- Taylor Larimore
- Posts: 32842
- Joined: Tue Feb 27, 2007 7:09 pm
- Location: Miami FL
Can you explain TIPS (VIPSX loss vs. VTAPX gain) ?
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Can you explain TIPS (VIPSX loss vs. VTAPX gain) ?
This seems to be the same phenomenon which occurs regularly with short-term versus intermediate-term bond funds. Short-Term Inflation-Protected Securities has a duration of 2.5 years, while Inflation-Protected Securities has a duration of 8.5 years, and is thus much more volatile (but with a higher yield, negative 1.12% versus negative 2.32%). When TIPS rates rose in the last two months, that caused the longer-term fund to lose more than 1% of its value.
You can see the same effect with Vanguard's Treasury funds; Short-Term Treasury was flat in the last two months, Intermediate-Term Treasury lost 1%, and Long-Term Treasury lost 5%.
Normally, when rates rise, short-term funds will lose some value as well. However, short-term rates have not risen recently; presumably, investors are expecting that short-term rates will rise in a few years but a rise is not imminent.
You can see the same effect with Vanguard's Treasury funds; Short-Term Treasury was flat in the last two months, Intermediate-Term Treasury lost 1%, and Long-Term Treasury lost 5%.
Normally, when rates rise, short-term funds will lose some value as well. However, short-term rates have not risen recently; presumably, investors are expecting that short-term rates will rise in a few years but a rise is not imminent.
Re: Can you explain TIPS (VIPSX loss vs. VTAPX gain) ?
First, here is how Vanguard arrives at the -0.79% and +0.66% returns for the past three months. $1,000 invested in VIPSX on 10/31/2012 fell 0.79% to $992.12 on 1/31/2013. But $1,000 invested in VTAPZ grew 0.66% to $1,006.64 during the same period.
Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)
Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares (VTAPX)
Looking at just two representative holdings of each fund:
The yield for the April 2015 -- whose age is close to VTAPX's average 2.6 year maturity -- decreased about 0.5% point over the three month period and its price correspondingly rose 0.7%. On the other hand the yield for the January 2022 -- whose age is close to VIPSX's average 9.3 year maturity-- increased about 0.1% point over the three month period and its price correspondingly fell 1.1%.
Price Source:
WSJ TIPS Quotes 10/31/2012
WSJ TIPS Quotes 1/31/2013
Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)
Code: Select all
Price/sh Div/sh Div Shs Tot Shs Tot $ % Change
-------- ------ ------- ------- --------- --------
10/31/12 $14.95 66.890 $1,000.00
12/19/13 $14.53 $0.405 1.864 68.754 $999.00
01/31/13 $14.43 68.754 $992.12 -0.79%
Code: Select all
10/31/12 $25.02 39.968 $1,000.00
12/19/13 $25.09 $0.026 0.041 40.009 $1,003.84
01/31/13 $25.16 40.009 $1,006.64 0.66%
Code: Select all
------ Yield ------ ---------- Ask Price ---------
Matures Age 10/31/12 01/31/13 10/31/12 01/31/13 Chg
-------- ----- -------- -------- --------- -------- -----
04/15/15 2.453 -1.306% -1.833% 104.53125 105.25 0.7%
01/15/22 9.207 -0.864% -0.770% 109.5 108.3125 -1.1%
Price Source:
WSJ TIPS Quotes 10/31/2012
WSJ TIPS Quotes 1/31/2013
Re: Can you explain TIPS (VIPSX loss vs. VTAPX gain) ?
Was just reading this.
https://institutional.vanguard.com/VGAp ... gShortTIPS
The Long and Short of TIPS
https://institutional.vanguard.com/VGAp ... gShortTIPS
The Long and Short of TIPS
"..the cavalry ain't comin' kid, you're on your own..."
- Phineas J. Whoopee
- Posts: 9675
- Joined: Sun Dec 18, 2011 5:18 pm
Re: Can you explain TIPS (VIPSX loss vs. VTAPX gain) ?
Hi Taylor,
While I'm not as analytical this evening as earlier posters (the Merchant of Venice bit wore me out a little ), interest rates across the real yield curve are no more constrained to move in parallel than interest rates across the nominal yield curve.
I don't have to tell you; I hope I don't have to tell anybody; but to be sure it is clear to anyone who might later come surfing bogleheads.org:
1) Bond funds are not bank accounts; and a short-term bond fund does not bear the same relationship to a longer-term fund that a short-term CD bears to a longer-term CD; and
2) In funds one owns shares. One does not own dollars.
PJW
While I'm not as analytical this evening as earlier posters (the Merchant of Venice bit wore me out a little ), interest rates across the real yield curve are no more constrained to move in parallel than interest rates across the nominal yield curve.
I don't have to tell you; I hope I don't have to tell anybody; but to be sure it is clear to anyone who might later come surfing bogleheads.org:
1) Bond funds are not bank accounts; and a short-term bond fund does not bear the same relationship to a longer-term fund that a short-term CD bears to a longer-term CD; and
2) In funds one owns shares. One does not own dollars.
PJW
Re: Can you explain TIPS (VIPSX loss vs. VTAPX gain) ?
In other words, the yield curve steepened.#Cruncher wrote:The yield for the April 2015 -- whose age is close to VTAPX's average 2.6 year maturity -- decreased about 0.5% point over the three month period and its price correspondingly rose 0.7%. On the other hand the yield for the January 2022 -- whose age is close to VIPSX's average 9.3 year maturity-- increased about 0.1% point over the three month period and its price correspondingly fell 1.1%.
Harry Sit has left the forums.
Re: Can you explain TIPS (VIPSX loss vs. VTAPX gain) ?
Talked to a flagship person yesterday. She said that a reason Vanguard will use the short term TIPs fund in the target funds is to minimize the money market piece, which has been paying zip.