Treasury inflation protected securities (TIPS) produced positive results in the second quarter but underperformed fixed rate Treasuries. Investor demand for safe havens from the volatility in stocks boosted the prices of high-quality government bonds from developed markets, but low inflation, low or negative real yields, and falling inflation expectations caused inflation protected bonds to underperform. Although oil prices rebounded in the second quarter, headline inflation rose just 1.0% in the 12-month period ended June 30, staying below the Fed's 2% target. Core CPI (which excludes volatile food and energy prices) has risen 2.3% over the most recent 12 months.
The Inflation Protected Bond Fund returned 1.67% in the quarter compared with 1.71% for the Barclays U.S. TIPS Index and 1.63% for the Lipper Inflation Protected Bond Funds Average. For the 12 months ended June 30, 2016, the fund returned 4.02% versus 4.35% for the Barclays U.S. TIPS Index and 2.57% for the Lipper Inflation Protected Bond Funds Average. The fund's average annual total returns were 4.02%, 2.21%, and 4.34% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2016. The fund's expense ratio was 0.58% as of its fiscal year ended May 31, 2015.
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While the fund has a limited ability to invest outside the inflation-linked market, it has become more difficult to find non-TIPS opportunities that are attractively valued and fundamentally sound. Regarding our out-of-benchmark positioning, it is worth noting that while we have typically favored corporate bonds, we are now more balanced between corporates and high-quality securitized debt-such as commercial mortgage-backed securities and asset-backed securities. These investments are highly correlated with the improving health of the U.S. consumer and are less tied to moves in energy prices.
We expect the environment of low inflation and low interest rates to continue in the near term. Oil prices may rally at times, but we believe the energy sector is going through secular changes that will continue to stimulate output and constrain prices. Core consumer prices (excluding food and energy) may also tick up at times but should generally proceed along a stable path in the low 2% range. A potential tailwind for the TIPS sector is coming from many developed market central banks, which are trying to raise inflation levels. While inflation has been low recently, investors should remember that an investment in TIPS can help preserve real value in a portfolio over longer time periods.