Feb

4

On October 12th, I suggested to the Site that Utility Stocks might be better investment than 5-year TIPS. The group's responses were wide-ranging and provocative. (I'm still trying to understand Tyler's answer.)

Here's an update (sort of):

5-year Note Yield then: 1.1% Now: 2.2% Cool!
5-year TIP Real Yield then: -0.5% Now: -0.1% Nice!
VPU (Vanguard Utility Fund) then: 67.19 Now: 68.3 plus .72 dividend Sweet!

So, translating this from the language of a Dairy Queen Commercial ("Cool, nice, sweet") to the language of a Serious Investment Professional ("Annual compounded internal rate of return"), I plugged the TIPS data into my Bloomberg. Alas, the Bloomberg returned: "Negative Yield, cannot calculate Prob. distribution!" Huh?

I've never had a problem dividing by zero before…? So, doing the arithmetic by hand, I reckon the TIPS have generated a nominal loss of 2.3% and the Utility stocks have generated a nominal gain of about 2.7%. Turning this into an "Annual Compounded Internal Rate of Return" is left as an exercise for the reader. I'll just say, "Sweet!"

Note: The most amazing thing is that even now, the 5 Year TIPS continues to have a negative real return!


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