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WIW: Inflation Hedge CEF, Fully Covered 6.9% Distribution Yield, 6.5% Discount To NAV


  • Inflation is high and rising.
  • Inflation hedge funds perform particularly well during recessions.
  • WIW is a strong inflation hedge CEF, offers investors a fully covered 6.9% distribution yield, and trades with a large 6.5% discount to NAV.
  • An overview of the fund follows.
  • This idea was discussed in more depth with members of my private investing community, CEF/ETF Income Laboratory. Learn More »

Inflation Illustration

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I've recently covered several inflation hedge ETFs, which allow investors to easily hedge and profit from rising inflation. These have all been ETFs, as CEFs generally focus on more standard, higher-yielding securities, but I was able to find one

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This article was written by

Juan de la Hoz profile picture

Juan de la Hoz has worked as a fixed income trader, financial analyst, operations analyst, and as an economics professor. He has experience analyzing, trading, and negotiating fixed-income securities, including bonds, money markets, and interbank trade financing, across markets and currencies. He focuses on dividend, bond, and income funds, with a strong focus on ETFs.

Juan is a contributor to the investing group CEF/ETF Income Laboratory which is led by Stanford Chemist. Features of the service include: managed income portfolios (targeting safe and reliable ~8% yields) making use of high-yield opportunities in the CEF and ETF fund space. These are geared toward both active and passive investors of all experience levels. The vast majority of CEF/ETF Income Laboratory holdings are also monthly-payers, for faster compounding and steady income streams. Other features include 24/7 chat, and trade alerts. Learn More.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (116)

I bot WIW near yearly wide discount of 15% as the wiw/tip pair is trading at multimonth low (wiw underperform)... this was signficantly lower than it is now in march 2020 but so was every other cef ...the pair was near 3 sigma rich in november 21
Addams Family Trust profile picture
as long as we're being honest, I bought some WIW recently based on credit quality and maturity (ok not duration) and discount (less crowded of a trade) and didnt think much about it's "inflation linked" properties except that it is something with AA rateds that pays a decent yield. I have owned the TIP etf in the past but glad i traded it. the gist I am getting from all the discussion is that these should be traded perhaps not a good set and forget kind of thing even with the quality
Tell me how you could make the statement, “the fund [WIW] outperforms when inflation is high and rising”, AND yet the fund is down 25.28% over the last year!
@jeffrg amen...in original article you will note there is no mention rising rates (especially real) being prime determinant of performance
@mmarek evans Isn't it rather understood that rate would rise in an inflationary environment?
@jeffrg it may be understood but when article published real rates were near all time low of -1% and is now +1.37 ..below is my comment from 1/6:
sold 1/2 my wiw on close below 200dma (13.16) ...these are negatively yield assets implying in case of 10year that given a yield of -1% and 10yr yield of 1.75 that breakeven inflation is 2.75 ...add on top of that they are likely longer duration assets extremely sensitive to higher yields
Eileen Dover profile picture
Hey @Juan de la Hoz With the price of WIW down 30% since you submitted this article 12 months ago, what is your opinion on setting some cash in WIW or WIA at this time? Thank you !
Juan de la Hoz profile picture
@Eileen Dover, more bullish on WIW now down in the past for three reasons. Discounts have widened, while interest rates and inflation, which determine the fund's distributions and expected returns, have both risen. Distributions have grown too, as one would expect from higher interest rates and inflation.
Eileen Dover profile picture
@Juan de la Hoz TY very much Juan ! Would that go for WIA as well ? Do you favor one over the other? Special and Reg Ex dates are 12/21.
Juan de la Hoz profile picture
@Eileen Dover, would also go for WIA. I do not favor one over the other, would pick the one with the highest discount (both have the same discount right now).
I wonder how to explain the 5.5% drop in the past 30 days. Any thoughts?
@XxEnderxX back of envelope calculation TIP ETF -3% 30% leverage -1% widening discount to nav -1.5%.. as long time holder of WIW in period of low inflation I welcomed the bidding up of TIPS to negative yields of as much near -1.5 % to liquidate ... given approximately 7yr duration the rise in rates I believe overwhelmed the upward adjustment in bond price due to inflation running near 7%
sold 1/2 my wiw on close below 200dma (13.16) ...these are negatively yield assets implying in case of 10year that given a yield of -1% and 10yr yield of 1.75 that breakeven inflation is 2.75 ...add on top that they are likley longer duration assets extremely sensitive to higher yields
1/7 stopped out of balance of position on close below 12.84 ...the underlying asset class (TIP) also seems to have broken down closing below 126.65.. the wiw/tip leveraged pair is trading near 2 sigma cheap (wiw underperform) as result of widening discount to nav
1/19 new multimonth low on TIP ETF on back of sharp rise in interest rates...w ...wiw had a brief rally based on narrowing discount to nav but would expect continued weakness
1/20 wiw/tip leveraged pair trading near multimonth low.. tip etf lingering near recent lows.. not a good combinaton
4/25 TIP has continued its downtrend (along with rest of fixed income market) going from 128.46 when article written to its current level of 121.48 (-5.5%) and WIW has plummeted going from 13.39 to 11.23 ( not including .194 in dividends ) for a nearly 15% drop.. this had made WIW cheap to the underlying.. I am looking for reversal in TIP to enter.. close above 122.11 would confirm
2whiteroses profile picture
@mmarek evans Did you read the section "TIPS Overview?" I wonder how relevant duration is to a security tied to inflation when inflation is a probably reason for higher interest rates.
@2whiteroses i did it read it.. why don't you read this

If nominal government bonds are yielding 5% and TIPS are yielding 3% for the same maturity, the assumption is that the annualized CPI will be 2%. If actual inflation over the course of the year exceeds 2%, the TIPS bondholders receive a higher real return than nominal bondholders. That 2% threshold is referred to as the inflation break-even point, beyond which the TIPS becomes a better value than the nominal bond.

while short term inflation measures are currently near 7% the more important measure is the breakeven (current 2.75%)...so if your long term inflation forecast is greater than that tips are a good investment ..the recent rise in interest rates have caused the value of wiw to drop nearly 5% since the beginning of the year
2whiteroses profile picture
@mmarek evans I don't profess to be an expert on TIPS but I also don't particularly see the direct relationship between what you're saying and the definition of the term "duration." It could be there, but it seems distant to me..

hafen profile picture
WIW was already on my buy list, but I pulled the trigger on your supporting recommendation. Why don’t you own it? I realize you can’t buy everything, but I suspect you’re rec of it supports some position in the author’s portfolio.
@hafen - I have had WIW for 17 years.
It is one of the few CEFs I did not sell after the financial crisis.
I can let Juan speak for himself but he made it very clear that what he is an expert at, retired investors, is not what he invests in at his age.
Juan de la Hoz profile picture
Thanks for commenting @hafen! As Ron said, most of what I write is targetted towards retirees and income investors, and I'm still a long ways from that.
hafen profile picture
Obviously, I missed that part. That said I’ll probably be very interested in your stuff. That also said, in my younger years, 2 different very successful financial advisors told me to buy these kinds of stocks from day 1. Look at how DGI stocks have contributed heavily to wealth later in life. Anyway, it’s all good. I’m anxious to see more of your writings.
NV_GARY profile picture
Up a lot after 12/20
Thanks for bringing WIW to my attention, never heard of the fund before
Respectfully, you are mischaracterizing this as a "large" discount. Morningstar shows that the 10 year avg discount is 11.93% so this is, in fact, a low discount. Also, recent returns are above the index of similar issues yet most of it's history they have performed clearly below the index. Also, inflation and higher interest rates will raise the funds expenses and lower returns. The current performance is aberrantly better than it's history shows and one should expect poorer performance in the future; not similar to the past year. There are other ways to do protect from inflation without this use of leverage.
@dilettant What would be the alternative inflation protecton methods that you mention here?
2whiteroses profile picture
I bot WIW along with WIA in Jan '18 for purpose of inflation hedging, however, I only held on to it for about 3 months.... At the time, both of them seemed to be more tracking interest rates in general than inflation trends so for my purposes they didn't seem to work as smoothly as I would have hoped.... Clearly 2021 was a different story but still, I chose a relatively unfollowed mutual fund, RALOX as my reinvestment of proceeds instead and for my purposes, I think it did better than WIW while still trying to achieve a similar goal.... Right now, if one is looking to add to inflation hedging, imho, you should buy the maximum amount of IBonds allowed at TreasuryDirect.gov first before looking to buy anything else. You won't do better than inflation buying IBonds but you'll match it long term and without any market risk or volatility at all.
Juan de la Hoz profile picture
Thanks for commenting 2whiteroses, completely agree with your point about Ibonds!
RettW profile picture
Very nice. It beat LTPZ by 10% last year.
Juan de la Hoz profile picture
Quite a few comments on the fund's yield! I explained the situation in the article, but thought to share some of my thoughts.

The fund currently pays a monthly $0.0485 distribution.

The fund paid a special $0.50 distribution in December.

Both distributions are covered by underlying generation of income. Income was much higher than average, as the fund invests in inflation protected securities, and inflation was quite high.

As the special distribution was covered by underlying generation of income, I think it makes sense to include it when calculating a distribution yield, which is what I did in the article. I also explained the situation, including calculating a distribution yield of 4.4% excluding the special distribution, for those that disagree. Hope this makes sense!
bluescorpion0 profile picture
@Juan de la Hoz how did the fund end up making 0.6 in short term gains as of 2022 distribution summary when the bonds got crushed and fund is down 20%?
Juan de la Hoz profile picture
@scorpionblue, not really clear to me either!
bluescorpion0 profile picture
@Juan de la Hoz sorry was looking at wia - franklintempletonprod.widen.net/...

fiscal is nov 2021 to nov 22 so maybe they started selling nov 2021?
still 1.98 distribution if it continues is 23% yield on today's price. Without the gains distributions , just investment income alone is a 16% yield.

Wiw had a little less at 1.386 total with 35 cents from capital gains and 1.0371 from investment income. Wondering also why WIW has lower distribution/yield than WIA, including both income & gains. I looked at both CEFs and they seem almost identical. Have to study what they're doing internally more

Picked up WIW last October, and have been surprised that no one has written touting its merits on SA for quite some time (try 2020). Thanks for your in-depth analysis.
Juan de la Hoz profile picture
Thanks @jazznut! I think its just that WIW is not that well known, very niche holdings too.
@jazznut and with good reason.. it has signficantly undeperformed its index (TIP etf) since october 21 and over the last 5 and 10yr periods is total annualized return is less than 1% on nav
bluescorpion0 profile picture
@mmarek evans it's an income fund. What's wrong with 1% cagr and high income yield??
Seatonmanagement profile picture
Hmmm. Yeah, more of a 3% sort of fund. Wildly up and down since 2004. Hmm. Thanks.
Your distribution rate is way off, not like you to do that.
Juan de la Hoz profile picture
Hi @BOBBIE B. I included the special distribution in that yield, also explained the situation here:

WIW's recent distributions consist of a monthly $0.0485 distribution, equivalent to 4.4% annualized yield, and a special $0.50 special distribution, equivalent to a 3.8% yield.
This is the first time the fund has paid a special distribution in years, good fund from a good sponsor, but generally a 3% fund.
It has performed better than most of the same ilk alternatives….quite pleased with my position
@amessb what "similar" funds has it performed better than?
@mmarek evans that comment was a year old…..who in the hell remembers LOL
@amessb tks ..clearly not you
richardsok profile picture
And here's yet another "kick myself" lost opportunity. I'd been watching WIW about a year ago as a possible non-gold inflation hedge. As it was zig-zagging nowhere for months, I eventually lost interest --- just as it began to climb.

Now we're up near previous resistance, and this ETF is one finicky baby. It bites.

A little late for a peaky buy now, maybe.
Juan de la Hoz profile picture
Thanks for commenting @richardsok! A bit late yes, but it really does depend on what happens with inflation. WIW should continue to perform very well +7% inflation.
Hi Juan:
I have owned WIW since 2005
So, in terms of the 6.9% yield...
The Dec 22, 2021 of 0.549 = a regular distribution and a special distribution.
Therefore next month's distribution will be around 0.044 as it was in Nov 2021.
The yield is actually approx. 3.88%. Still decent though.
Juan de la Hoz profile picture
Thanks for commenting Ron!
Eileen Dover profile picture
@Ron1634 Distribution is now around .055/mth plus a special per qtr for the first 3 qtrs and possibly another in Dec. That would make the yield now just under 6% and 10% with the specials included. Would you think it's a good place to store some cash while waiting out the unstable economy through the next year or so? Yes, I notice leverage in in the 30's. Thanks. I value your opinions !
@Eileen Dover - So it is. No surprise being it is a TIP-type fund.
Distribution will go down when inflation goes down - right?
Still, not a bad fund.
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