When I first saw that this fund had lost 2.29% to the end of November, I honestly thought it was an error. I was surprised for a number of reasons. First, real return bonds tend often have very long time horizons, and at times trade much like a traditional long bond. Therefore, with yields dropping, one would expect a positive return. Second, the real return bond index was up more than 14% so far this year, so a loss is pretty much inconceivable.
However, digging a little deeper I found the managers have sold Government of Canada bond futures to shorten the duration of the fund and hedge a portion of the interest rate risk. This was done to protect the fund against rising rates. If rates moved higher as everyone had expected, this would have been a positive for the fund, as the shorter duration profile would have helped preserve capital. However, when yields moved down, they got caught on the wrong side of the trade.
Looking forward, if we do see yields move higher in the New Year, the futures position would be expected to preserve capital for investors. However, I am still not convinced that it is a good time to have real return bonds in your portfolio, at least not as a standalone fund. Most of the more actively managed bond funds can add real return bonds when they feel it necessary. That said, if you want real return bond exposure, I would look at something like a PIMCO Canadian Real Return Bond or a PH&N Inflation Linked Bond Fund.