212 THE BiG DROP
Going back to our seesaw analogy, the longest-maturity
Treasuries are at the far end of the seesaw. In response to fall-
ing rates, long-term Treasuries would rally much more than
short-term Treasuries. In past deflation scares, Hoisington has
positioned its investors to profit from sharp rallies in long-term
Treasuries. WHOSX is an excellent deflation hedge for your
portfolio.
It’s a no-load fund with a $2,000 investment minimum
and charges 0.71% per year in management fees. You can buy
WHOSX through most discount brokerage platforms.■ The Ultimate Form of “Cash” in Financial
Markets
Aside from emergency cash held someplace safe, there are safe
options for the cash portion of your portfolio. If you want to
avoid interest rate risk and want intraday liquidity, the iShares
1–3 Year Treasury Bond ETF (SHY: NYSE) is a good alternative
to money market funds. Money market funds invest in com-
mercial paper, which became illiquid in the 2008 crisis.
Treasuries approaching maturity are generally liquid and
in demand — even during crises. They’re the closest thing to
cash in the financial markets. SHY seeks to track the invest-
ment results of an index composed of U.S. Treasury securities
with remaining maturities between one and three years. SHY
won’t offer any measurable return as long as the Fed keeps
rates at zero, but it won’t lose money, either.
How is this any different than the Wasatch-Hoisington U.S.
Treasury Fund (WHOSX)?
The key difference is that WHOSX has more risk and more
potential reward. It has interest rate risk. Interest rate risk
simply refers to how much a bond price moves in reaction to
changes in interest rates. Think of a seesaw; as bond yields go
down, bond prices go up.