Bond Fund Spotlight: American Century Short Duration Inflation Protected Bond Fund [APOIX]
By: Ted Black, CFP©
Fall 2021 (Vol. 39, No. 3)
The level and direction of both short and long term interest rates can heavily influence investor decisions and the performance of both the stock and bond markets. The bond market in particular is quite sensitive to changes in the interest rate environment. This principle is at the foundation of the Money Movement Strategy.
There are two primary items to consider regarding a potential investment in this fund: Interest rates; and Inflation. We’ll take a quick look at each below.
As a quick refresher, there is an inverse relationship between bond prices and changes in interest rates: as interest rates go up, bond prices go down; and vice versa. But that’s not the end of the story. It’s also important to recognize that bonds with long maturities (20 or 30 years), are much more sensitive to swings in interest rates than those with very short maturities (1 to 3 years). This sensitivity to interest rates can be measured by a statistic called “duration”.
At the conclusion of their most recent monetary policymaking meeting, the Federal Reserve Board (the Fed) indicated that they were likely to begin to “taper” their bond buying program prior to year’s end, and that a series of interest rate hikes would likely begin in 2022 and continue into 2023. They also maintained their stance that the current rise in inflation would be transitory.
Inflation, as measured by the Consumer Price Index (CPI), was up 5.4% over the past 12 months according to the most recent release by the Bureau of Labor Statistics. This is a level significantly higher than the Fed’s target rate. The primary suspect for rising inflation is the much talked about disruption in the supply chain. Among a longer list of contributors to the problem, the shortages of raw materials, labor and reliable energy sources at the origin of product creation, bottlenecks and labor shortages in major ports, and a long standing shortage of truck drivers here in the U.S. all contribute the problem.
Given the current situation, the American Century Short Duration Inflation Protected Bond Fund (APOIX) might be worth a closer look for a portion of one’s portfolio. This fund is actively managed to help reduce volatility associated with rising interest rates, and to combat the corrosive effects of domestic inflation through holdings in inflation-indexed bonds.
If you’d like to discuss this further, or would like a portfolio review to determine if this fund might be appropriate for your portfolio, please call Ted Black, CFP© at 888-878-0001, extension 3.
Performance annualized and updated through 9/30/2021: 1-Year: +6.61%; 3-Year: +4.71%; 5-Year: +3.06%. The gross annual expense ratio is 0.57%.
Statistics and information provided by Morningstar and American Century Investments. Please visit the American Century website at www.americancentury.com for the most recent performance information. The principal value and investment return will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns shown, unless otherwise indicated, are total returns, including any capital gains or losses and all dividend and capital gains distributions. The performance data quoted represents past performance and in no way guarantees future results. Mutual funds are not FDIC insured.
Mutual funds are sold by prospectus. An investor should consider the investment objectives, risks, charges and expenses of the investment company carefully before investing. The prospectus contains this and other information about the investment company. Please go to www.americancentury.com or contact our office at 888-878-0001 to obtain a prospectus. Please read the prospectus carefully before you invest or send money.
Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.