Expert: Doug Ingram - 1/1/2003

Question
Assuming the next major interest-rate moves will be up, not down, over the next 1-3 years, do you believe an investor would obtain a higher return from making an investment today into a GinnieMae mutual fund, or by purchasing the same dollar amount of 10year government inflation-protected bonds in the form of the bonds themselves, not a mutual fund?  Thank you very much for considering my question.  Glen C.  

Answer
Although the current return is most likely higher on the GMNA fund, higher interest rates would imply inflation.

Higher rates would have a negative effect on the holdings of GNMA collateral.

Inflation would increase the value of the TIPS holdings.
In your scenario, the TIPS would probably outperform the GNMA funds.

In a flat to down rate scenario, the GMNA fund would be better.