In May 2012, AGF launched this very interesting balanced fund that is designed to mitigate the impact of inflation. It invests in an actively managed basket of AGF funds with underlying exposure to inflation adjusted fixed income, resource and commodity stocks. The target asset mix is set at 60% AGF Inflation Plus Bond Fund, 20% AGF Global Resources Class, and 20% AGF Precious Metals Fund. At November 30, it was underweight both bonds and precious metals, with an overweight to resources. Looking at that asset mix, it’s not hard to see why this was the worst performing balanced fund this year.
The AGF Asset Allocation Committee conducts formal reviews on a quarterly basis, also manages the asset mix. It determines the outlook for each asset class and region, and then optimizes the portfolio by return, yield and volatility.
The idea for this fund is very interesting, but the timing of its launch really couldn’t have been worse. While the longer-term outlook for inflation may be positive, it is muted in the near term. Add in a relatively calm geopolitical environment, and it’s not hard to see why it has struggled. For the past year, the only fund of the three that has been positive was the AGF Global Resources, but it was only marginally in the black. AGF Precious Metals has been pummeled, dropping 43% in the past year.
Understandably, with this backdrop, the fund has performed rather poorly. It is down 5.4% since its launch and was down 3.8% so far this year. This lagged both the benchmark and the peer group by a substantial margin. That doesn’t necessarily mean that this is a bad fund. Looking at the current environment, the performance, while poor, isn’t out of line with expectations for inflation focused funds. The underlying funds are all decent on their own, but combining them into one balanced fund has been disastrous compared with other balanced funds that don’t have the inflation focus mandate.
Considering the outlook, I don’t expect there to be much of a change in the short term. Longer term however, with all the liquidity that has been injected into the global economy, there is likely to be increasing pressure on prices. Considering that, I would avoid this fund in the short term. But it might be something to take a look at down the road.