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An All-in-One Inflation Hedge

Jeff Holt, CFA

Jeff Holt: This week's medalist is Principal Diversified Real Asset (PRDAX). It's a conservative-allocation fund that focuses specifically on inflation-hedging asset classes.

Compared with other strategies that invest in inflation-hedging asset classes, this fund invests in more asset classes and also uses external subadvisors in most of those asset classes. So, in terms of asset classes, it includes the typical inflation-hedging asset classes like REITs, commodities, [Treasury Inflation-Protected Securities], but it also includes other asset classes like infrastructure stocks, master limited partnerships, and even floating-rate debt.

Principal is responsible for managing the REITs allocation, and in all other asset classes, they have selected external subadvisors to manage portfolios. And so, those subadvisors include well-known names like BlackRock and Credit Suisse, but they also include several specialty managers like Tortoise and Brookfield.

Investors should be aware that this fund can fall into negative territory over the short term, because it does invest in some volatile asset classes. But its diversification across those asset classes has helped smooth returns. And overall, this fund is a good option for investors looking for a single fund that invests in a variety of inflation-hedging asset classes.