Last week, The Wall Street Journal published a story explaining why Pimco, the behemoth bond fund manager, believes active management is preferable for running a portfolio of TIPS, or inflation-indexed Treasuries. According to the article, “Pacific Investment Management Co….says that while indexing may work wonders in the stock market, with TIPS it often leads to missed opportunities and hidden costs.” Meanwhile, you can find Pimco’s research paper that inspired the article here.
Some commentators have picked up on the article and announced a variety of revelations to the masses, ranging from the idea that investing in TIPS is somehow different compared with owning conventional bonds and even stocks to allegations that the Journal story highlights a new smoking gun in the case against indexing.
Nonsense. Nothing’s changed, even if the article suggests otherwise. Indexing is no more or less persuasive today vs. last year, for TIPS or any other asset class. The evidence begins with the fact that the long-term record speaks for itself, which boils down to the reality that beating the market is still very difficult over time.