With consumer prices soaring to a 40-year high of 8.5% in the 12 months through March, it would be nice to have investments whose returns beat that level.
Otherwise, you’re losing money on an inflation-adjusted basis.
Barron’s put together a list of closed-end funds that have a distribution rate of more than 8% and have annualized total returns of at least 8% over the past five years.
It eliminated funds with negative returns of more than 1% over the past year. The chosen funds also trade at a discount to net value.
Barron’s Randall Forsyth wrote that he chose closed-end funds, because they have the highest distribution yields.
To be sure, they borrow money to allow them to pay those high yields, which boosts risk, especially as interest rates rise, he pointed out.
The funds include Virtus AllianzGI Diversified Income & Convertible (ACV), Calamos Convertible & High Income (CHY), Calamos Convertible Opportunities & Income (CHI) and Advent Convertible & Income (AVK).
Meanwhile, Morningstar recently created a list of “inflation-fighter” mutual funds and exchange-traded funds.
Here are three gold-rated funds, Morningstar’s top ranking.
1. Vanguard Short-Term Inflation-Protected Securities ETF VTIPX
This fund focuses on Treasury Inflation-Protected Securities (TIPS).
It’s a “great TIPS fund because of its low fee and sensibly constructed portfolio,” Morningstar analyst Neal Kosciulek wrote in a commentary. The fund has an expense ratio of just 14 basis points, according to Morningstar.
When the consumer price index (CPI) rises, the value of the TIPS’ principal is adjusted upward, which means higher coupon payments.
2. T. Rowe Price Floating Rate PRFRX
This mutual fund focuses on loans with interest rates that float, so now is a time when their yields should rise.
“T. Rowe Price Floating Rate stands out versus peers with its experienced portfolio managers and deep credit research team that complements this offering’s selective, risk-aware approach,” Morningstar analyst Paul Olmsted wrote in a commentary.
“The strategy’s consistent process is dictated by careful, fundamental credit research performed by an experienced analyst team that covers the gamut of non-investment-grade debt.”
3. Parnassus Core Equity Investor PRBLX
This mutual fund has an environmental/social/governance (ESG) focus.
It excludes companies with a significant exposure to alcohol, tobacco, weapons, fossil fuels and nuclear power. It seeks companies with ethical practices.
Downside protection has been a strength for this fund’s focused, roughly 40-stock portfolio, Morningstar analyst Stephen Welch wrote in a commentary.
Parnassus Core Equity’s decline so far this year is smaller than the S&P 500’s, 11% versus 14% .
