4 Bond Funds to Protect Your Portfolio from Inflation

Since heightened inflation erodes the purchasing power of income, portfolios should include some protection against it. That’s more important in uncertain environments like the present. Tariffs and government shutdown-induced challenges have clouded the inflationary picture for the Federal Reserve in recent months. The Consumer Price Index’s year-over-year change, which in April had come down to 2.3%, has risen since. Data problems make it difficult to say by how much. It was 3.00% in September, could not be calculated in October, and by December was 2.68%. Based on the difference between the yields of nominal Treasuries and Treasury Inflation-Protected Securities, the market since the start of the year has increased its inflation expectations over the next five years to 2.62% on average, as of early February.

That’s not runaway inflation, but it is above the Fed’s 2% target even if it hits that mark. The market could also be wrong. In September 2020, it anticipated five-year inflation to average 1.5%, 3 percentage points lower than it proved to be.

Gold’s ability to combat inflation has a historic pedigree, and it has glittered of late. Between late 2022 and early February 2026, its 203% cumulative rise in price trounced inflation and even US large-cap stocks. But gold is more effective as disaster insurance than as an inflation hedge. It produces no cash flows, can swing dramatically in price, and destroys wealth when bought at the wrong time. From the late 1970s to early 1980, for example, gold surged to USD 850 per ounce before losing nearly two-thirds of its value by mid-1982 and remaining range-bound between about USD 300 and USD 500 for more than two decades, all while inflation climbed.

Investors are on safer ground allocating a portion of their assets to a reliable inflation-protected bond strategy. Here are four, listed in order of increasing complexity.

Vanguard Short-Term Inflation-Protected Securities Index Fund VTAPX has a Morningstar Medalist Rating of Gold within its short-term inflation-protected bond Morningstar Category. For a cost of only 0.06% per year, it tracks the Bloomberg US TIPS 0-5 Year Index composed of TIPS with less than five years until maturity. That investment universe helps limit this strategy’s interest rate sensitivity, which for intermediate or longer-term TIPS strategies can overwhelm their inflation-protecting properties in a rising-interest-rate environment like 2022.

Vanguard Inflation-Protected Securities VAIPX, which has a Morningstar Medalist Rating of Silver, has more interest rate sensitivity, but it is otherwise a straightforward, actively managed option. It concentrates almost exclusively on US TIPS, avoiding non-US inflation-linked debt, corporates, and securitized bonds, which often complicate competitors’ portfolios. Manager John Madziyire and his team look for relative value opportunities and try to generate additional excess return through altering the fund’s interest rate sensitivity.

Higher-than-average fees have kept Pimco Real Return’s PRTNX Morningstar Medalist Rating at Neutral, but it is otherwise a standout strategy. It seeks to exploit the relative valuations between inflation-linked swaps and TIPS, seasonal fluctuations in inflation patterns, or inefficiencies in the auction markets for government securities. Unlike the other two strategies, it also looks for opportunities in the international inflation-linked bond market. Its appeal remains even though it had a recent manager transition. Mike Cudzil took over for the retiring Steve Rodosky at the beginning of 2026. Since joining Pimco in 2012, Cudzil has grown into one of the firm’s leading voices on US rates and inflation. He is well qualified to lead the strategy going forward.

Silver-rated FPA Flexible Income FFIRX is in the nontraditional category because the strategy’s only constraint on interest rate risk, as measured by duration, is to stay positive; it can also hold up to 75% of assets in debt rated BBB or lower. What makes it suitable as an inflation hedge in a portfolio is its goal of producing a positive absolute return over trailing three-year periods while beating inflation by 200 basis points over five years. It has not always hit that goal, especially when inflation surged in 2022. But FPA has run this fund’s sibling, FPA New Income, with great long-term success.

This article originally appeared in the January 2026 issue of Morningstar FundInvestor newsletter. Click here for a sample issue.