Forewarned Is Forearmed
Hartford Inflation Plus Fund
Author: Ticker Staff
Last Update: , :
|William Davison, Director of The Hartford’s Funds Management Group has over 21 years of investment experience. He is a co-manager of the firm’s Inflation Plus and Income mutual funds. Prior to joining The Hartford, Davison served as a vice president of corporate finance with Shawmut National Corporation, and also as a loan officer with Manufacturing Hanover Trust Company.
||Hartford Inflation Plus Fund|
Q: Do you maintain a short-term outlook on inflation?
We try and look at inflation over a three- to six-month period but with an eye on a little bit longer to have a sense as to where we think it is going over time.
Q: Who are investors that should not be exposed to these kinds of funds?
People who are very concerned about volatility might be a little concerned about this fund because just from a CPI standpoint, one month could be fairly high and then the next month could be fairly low, so some of that volatility comes through. And that would particularly relate to people who are looking forward to a monthly fixed income or predictable income because the income on this fund, even though over the course of a year in our prior example you might get 4% inflation, but that can come in pretty big chunks.
You might get some of it early in the year because of the way CPI is adjusted and then you might get much of it in the summer and then you might get more of it in the fall. So people who are dependent upon a particular income stream might have a little bit of trouble with this fund because it is not as predictable. The NAV may also fluctuate due to general rises and declines in the level of real rates (interest rates minus inflation).
Q: What type of tax consequences do you have when investing into this kind of fund?
Since they are treasury securities, they are treated just like traditional treasuries from a tax perspective but there is one important difference, and again going back to our 4% example, the $40 that get added to your principal value is taxed to you in that year, however, you won’t receive it until the maturity of the security, so it becomes “phantom income”. When you buy through a fund, the fund distributes that inflation accrual every month so that “phantom-income” issue effectively goes away. At the end of the year, you are going to be taxed on your inflation accrual but you would have received that as a distribution by the fund.
1 2 More: Mutual Funds Archive