I was looking at the recent performance of the Vanguard Inflation-Protected Securities Fund (VIPSX). In the period from September 30, 2016 until June 30, 2017, VIPSX went from 13.79 to 13.07 - a drop of about 5%.
(Source: Ameritrade Historical Quotes).
According to the US Bureau of Labor and Statistics, the CPI for the same period is about 1.3% (that is, $10,000 in October 2016 has the same buying power as $10,133 in June 2017).
That's not how I understand "inflation protection" - obviously there is something that I am missing.
Can somebody please explain why there can be such a divergence between these two quantities, when one is supposed to track the other? I imagine that interest rates play into this (as interest rates rise, other investments may be more attractive?) - but I've not been able to find a really good explanation, given the fund's stated goal:
Vanguard Inflation-Protected Securities Fund seeks to provide investors inflation protection and income consistent with investment in inflation-indexed securities.
A 6% divergence from the goal in a "conservative" fund looks like a big miss to me. If I wanted that kind of risk to my capital, I'd put it somewhere that has a greater potential reward...
It seems this is not the only "inflation protected" security to suffer this fate. The iShares TIP chart for the last year looks like this:
Again - we see a big drop starting right after the US presidential election (is that a clue?), reaching a minimum on December 16th before recovering somewhat. NAV return for the last year is about -1.55%.
And that's a fund that claims to be 100% invested in US government TIPS... What am I missing?