Vanguard has been at the forefront of the ongoing so-called price war in the exchange traded funds industry. Now, the third largest fund provider is marketing a cheaper alternative to current short-term Treasury Inflation Protected Securities ETFs on the market.
On Tuesday, Vanguard is launching the Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP), which tries to reflect the performance of the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index, IndexUniverse reports. [Vanguard Extends ETF Price War to TIPS]
The index holds inflation-protected public obligations of the U.S. Treasury with maturities of less than five years. TIPS holdings have an effective duration of 2.53 years and an average maturity of 2.59 years.
“The new Short-Term Inflation Protected Securities Index Fund will provide an additional choice for investors who are seeking protection from inflation,” Vanguard Chief Investment Officer Gus Sauter said in a previous press release.
This additional choice will be directly competing with costlier alternatives, including the iShares Barclays 0-5 Year TIPS Bond Fund (NYSEArca: STIP) and the PIMCO 1-5 Year U.S. TIPS Index Fund (NYSEArca: STPZ), which both have a 0.20% expense ratio. In comparison, VTIP will have an annual expense ratio of 0.10%.
Vanguard is well known for its low-cost index ETF products. Its ETF offerings have an average expense ratio of 0.17%, whereas the industry average is around 0.55%. More recently, the fund provider announced its decision to switch out of MSCI indices in favor of cheaper options that could translate to further savings for investors. [Vanguard Benchmark Trade Shakes Up Index Industry]
TIPS and related ETFs have been gaining traction as investors try to hedge growing inflationary concerns in light of central banks’ loose monetary policies. However, the assets have recently experienced some outflows on either a traditional round of profit taking or the more troublesome deflationary concerns. [Deflation Warning? – Investors Dumping TIPS ETFs]
For more information on new product launches, visit our new ETFs category.
Max Chen contributed to this article.