Inflation Protection Fund (IPF)

Fund Characteristics
Fund Performance (Net)
Risk and Disclosures

Fund Objective, Strategy and Holdings

  • The Inflation Protection Fund seeks to provide investors with current income and protect principal from loss of purchasing power due to inflation.
  • The Fund holds a combination of U.S. and foreign fixed income securities. The Fund also invests in commodity futures contracts and holds senior secured loans.

Management

The Inflation Protection Fund (IPF) invests with eight external investment firms that invest in assets that are expected to provide returns in excess of inflation over time. The Fund has 35% of its assets allocated to an enhanced U.S. TIPS strategy. The remainder is invested mostly in active strategies that hold inflation-linked bonds from both developed and developing countries. The Fund also attempts to modestly improve investment returns by investing up to 12% of its assets in commodity futures contracts, up to 12% in senior secured loans, and up to 10% in real assets and alternative investments.

Asset Managers

* Signatory to the United Nations Principles for Responsible Investment

Performance Review

During the second quarter of 2017, the fund’s strategic underweight allocation to U.K. inflation-linked bonds and overweight allocation to U.S. inflation-linked bonds helped benchmark-relative returns. The out-of-benchmark allocations to below investment grade floating rate strategies and private timber also positively contributed. The fund’s underweight allocation to inflation-linked bonds issued by European governments detracted from relative performance.

Fund Characteristics as of March 31, 2017

  IPF Benchmark
Effective Duration 5.94 11.20
Effective Convexity 1.02 0.49
Yield to Worst* 0.86% -0.36%
Effective Maturity 7.82 13.49
 
*Does not reflect the deduction of fees.
 

Fund Performance

Performance, Net of Fees

Inflation Protection Fund – March 31, 2017IPF_chart1

The above chart represents the range of investment returns for the Lipper mutual fund universe for Inflation Protected Bonds. Source: Wilshire Associates and Lipper


Performance, Net of Fees - June 30, 2017

  3 mo YTD 1 yr 3 yr 5 yr 10 yr
Inflation Protection Fund
-0.02%
1.31%
1.70%
0.18%
0.78%
3.80%
Benchmark1
-0.43%
0.65%
1.63% 2.46%
1.33%
4.88%
 
1On January 1, 2016, the benchmark for the Inflation Protection Fund became 80% Barclays World Government Inflation Linked Bond Index (Hedged), 10% Barclays Emerging Market Tradeable Inflation Linked Bond Index (Unhedged) and 10% Bloomberg Commodity Index. From January 1, 2006 to December 31, 2015, the benchmark was the Barclays Capital U.S. Government Inflation Linked Bond (Series B) Index. From April 1, 2005 to December 31, 2005, the benchmark was a blended index based on the following weightings: Barclays Capital U.S. Government Inflation-Linked Bond Index (50%) and Barclays Capital Global Inflation-Linked Bond Index (50%). Prior to April 5, 2005, the benchmark was the Barclays Capital U.S. Government Inflation-Linked Bond Index.  
 

See Risk and Disclosures for more information regarding Net of Fees Performance.

 

Fund Distribution by Credit Quality as of March 31, 2017

IPF_chart3

 

Holdings-Based Sector Allocations as of June 30, 2017

Sector IPF Actual
(%)
IPF Benchmark
(%)
Difference
(%)
TIPS 51.5% 35.5% +16.0%
Global Inflation-Linked Bonds (Developed) 13.1% 44.5% -31.4%
Senior Secured Loans (Floating Rate) 10.3% 0.0% +10.3%
Emerging Market Inflation-Linked Bonds 9.8% 10.0% -0.2%
Commodities 9.3% 10.0% -0.7%
Real Assets and Alternative Investments 5.3% 0.0% +5.3%
Cash 0.7% 0.0% +0.7% 

 

Expense Ratio

All expenses of the Fund are deducted from the Fund’s net asset value. The expenses include investment management fees, operating expenses, bank custodial fees and miscellaneous Fund administration expenses. These expenses are paid directly by IPF, and are reflected in the unit price calculated for the Fund. The unit price is multiplied by the number of units held in each client’s account to determine the total value of the client’s holdings in the Fund. For 2016, IPF’s expenses were approximately 0.58% of the Fund’s total assets.

Risk and Disclosures

All investments carry some degree of risk that will affect the value of the Fund’s holdings, its investment performance and the price of its units. As a result, loss of money is a risk of investing in the fund. IPF is subject to the following principal investment risks: market risk, investment style risk, security-specific risk, credit risk, country risk, currency risk, derivatives risk, interest rate risk, deflation risk, liquidity risk and prepayment risk.

Because U.S. Treasury Inflation Protected Securities (TIPS) are debt obligations issued and backed by the full faith and credit of the U.S. Government, they are considered to have low credit or default risk. Inflation Protected Securities issued by foreign governments, particularly governments of emerging countries, risk the possibility of loss due to credit risk.

For further discussion of the Fund’s investment strategies and risks, please refer to "Principal Investment Strategies and Principal Investment Risks of the Funds — Inflation Protection Fund" in the Wespath Investment Funds Description.

Lending of Portfolio Securities

The Fund seeks to earn additional income by lending a portion of its portfolio securities to brokers, dealers and other financial institutions. The loans are secured at all times by cash and liquid high-grade debt obligations. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower fail financially. In addition, losses could result from the reinvestment of the cash collateral received on loaned securities.

The Fund generally does not invest in companies that derive more than 10% of their revenue from gambling or from the manufacture, sale or distribution of alcoholic beverages, tobacco-related products, adult entertainment, weapons, or the management or operation of prison facilities.

Fund Facts

Inception January 5, 2004
Exp. Ratio 0.58% for 2016
Benchmark Custom Blend*
Fund Assets $1.80 Billion as of June 30, 2017
Holdings March 31, 2017
Unit Price History Wespath Funds Price History
For More Information Investment Funds Description
*80% Bloomberg Barclays World Government Inflation Linked Bond Index (Hedged), 10% Bloomberg Barclays Emerging Market Tradeable Inflation Linked Bond Index (Unhedged) and 10% Bloomberg Commodity Index.

 

Fund Managers

frank-holsteen

Frank Holsteen

Director, Fixed Income
With Wespath since 2012
B.A. from Lake Forest College
 
 
constance-christian

Constance Christian, CFA

Manager, Fixed Income
With Wespath since 2016
BSBA and MBA from Xavier University
MA from DePaul University
 
 
 
©2017 Wespath Investment Management, a division of Wespath Benefits and Investments, a general agency of The United Methodist Church. All Right Reserved.