The ETF provides an inflation-protected investment and exposure to foreign currency through access to government inflation-protected securities from 18 countries in 15 different currencies.
Although bonds from France and the U.K. comprise nearly 40% of the portfolio, the ETF is also invested in countries as diverse as South Africa, South Korea and Uruguay.
In addition to inflation protection, the International TIPS ETF provides portfolio diversification. According to State Street’s fact sheet, the correlation between the WIP’s tracking index and the S&P 500 was .01 in the period March 2007 to February 2008. The index returned 20.99% vs. the S&P 500′s -3.6% in the same time period.
What’s the cost of investing in inflation protected bonds across so many countries and currencies? The expense ratio for WIP is 0.5%.
A few considerations to keep in mind. First, as of April 7, 2008, the ETF was trading at a 1.2% premium to NAV. Also, inflation protection is achieved by periodically adjusting the principal value of the underlying bonds which can result in taxable distributions. Finally, remember that the fund is investing in international securities.
Consult with your financial advisor and tax advisor before investing in International TIPS.
For more information, see State Street’s website.