Subject: Re: De-risk a bit?
However its long-term performance appears to have been somewhat meager and quite volatile. I'm wondering whether I'm not seeing something that you're aware of.

It's a very complicated thing to understand from the chart.

First, of course, is currency movements. A lot of people measure things in US dollars, but in fact the US dollar is one of the currencies that goes up and down the most. Since everything inside WIP is outside the US, the price (measured in US dollars) goes down when the US dollar goes up, and vice versa. This is an illusion...the global general purpose purchasing power is staying flat.

Second, of course it has been a pretty high coupon security lately. So be sure you're looking at a total return graph (the default at stockcharts.com, for example), not just price return.

Next, inflation protected bonds can be quite hard to understand. You might be guaranteed a given real total return in a given currency, but it's maddeningly difficult to figure out how much of that might show up as coupons and how much as capital at the end. Thus, the returns of WIP have the same issue: the mix of capital and coupon returns varies over time, mainly based on whether inflation is rising or falling in various countries. So for example WIP has had extremely high coupons in the last few years, but they are falling fast, but the capital value return has been rising. It only makes sense if you look at the sum of the two.

Lastly, global bond yields were really low a while back. Negative in many cases. So, any bond fund that bought medium or longer term paper at that time has had a one time (or perhaps cyclical) loss as the current market value of those bonds falls in the face of newly issued paper at higher yields. We've seen rates go up over the last few years, so this has been a drag. I think this process is largely over, though it might have a bit more to run.

Overall, the expected real return is actually positive, even though a chart of the price doesn't really give a great impression at first. That why, for example, the regulatory number now shows the current yield-to-worst (weighted average across the holdings) is now 4.38%.

All that being said, it's not a way to make a lot of money. You might get only inflation+1%/year, say, which is about what it has returned in currency-neutral returns lately. (I think it should in theory be more going forward, but as mentioned it's really hard to figure out!) In any case, the real total return isn't going to be high. But it is apparently an outstanding way to protect purchasing power in the face of possibly very large moves in some currencies or very high inflation rates in parts (or all) of the world. Given the level of protection on offer from those threats, the fact that it offers the prospect of any positive real yield at all and a relatively stable price is a bonus: people put up with a lot less from gold holdings purchased with the same goals in mind.

The main risk is that it's a US domiciled wrapper on non-US bonds. It still has exposure to any ructions in the US regulatory regime or financial system meltdowns. And (for people like me) a huge US tax on the coupons, despite their underlying source being all non-US source government bonds free of withholding tax. It would be better to a slate of the underlying bonds directly, but that is spectacularly difficult to do yourself. (I even asked a wealth management bank if they could do it, and ... haven't heard back. These aren't the sorts of folks to turn down an opportunity to make a buck)

Jim