Investing in Inflation Expectations with TIPS ETFs

The WSJ‘s Annelena Lobb weighs the risks and benefits of hedging against inflation with TIPS.

In the article Investors Seek Inflation Haven in TIPS Funds, Lobb writes that inflation worries has resulted in more than $17 billion pouring into funds that invest in government-issued bonds whose principal grows with rising inflation.

While the principal of TIPS is tied to the inflation rate, the value of TIPS in the secondary market is also driven by inflation expectations. So the risk of TIPS investing is that the securities could fall in a scenario where inflation expectations turn out to be wrong.

ETF investors have several TIPS funds to choose from. The Barclays Capital TIPS Bond Fund (TIP) tracks an index that includes all publicly issued, U.S. Treasury inflation-protected securities that have at least 1 year remaining to maturity, are rated investment grade and have $250 million or more of outstanding face value.

The SPDR Barclays Capital TIPS ETF (IPE) is similar to TIP but is restricted to issues that are $500 million or larger.

A recent addition to the ETF universe is the PIMCO 1-5 Year U.S. TIPS Index Fund (STPZ) which tracks an index of U.S. Treasury Inflation Protected Securities with a remaining term to final maturity less than 5 years and not less than 1 year.

Interational TIPS are also accessible through ETFs. The SPDR DB International Government Inflation-Protected Bond ETF (WIP) tracks an index that measures the total return performance of inflation-linked government bonds from developed and emerging market countries outside of the United States.

Be Sociable, Share!

, , , ,

Powered by WordPress. Designed by Woo Themes