ETF Trends
ETF Trends

As exchange traded funds (ETFs) continue to prosper, PIMCO has introduced two new fixed income ETFs focusing on the interesting realm of Treasury Inflation-Protected Securities (TIPS).

The first is the PIMCO 15+ Yr. US TIPS Index Fund (NYSEArca:LTPZ), which is designed to capture the returns of the longer maturity subset of the Treasury Inflation-Protected Securities (TIPS) by tracking the Merrill Lynch 15+ Year US Inflation-Linked Treasury Index.  Additionally, it carries an expense ratio of 0.27% and provides more concentrated exposure for those who have specific views on real yields.

The second ETF is the PIMCO Broad US TIPS Index Fund (NYSEArca: TIPZ), which aims to track the Merrill Lynch US Inflation-Linked Treasury Index and carries an expense ratio of 0.30%.  The fund seeks to enable investors to grab exposure to the benefits of broad-based TIPS, which include inflation-hedging and diversification.

TIPS (Treasury Inflation-Protected Securities) can help hedge against inflation in three ways:

  • TIPs 101. Treasury Inflation-Protected Securities help you maintain the purchasing power of your dollar even as inflation takes it away. TIPS offer a fixed yield plus the inflation rate to keep pace with changes in the consumer price index
  • Why now? The inflation insurance that TIPS provide is cheap, but is gradually getting less so. Smart shoppers know the best time to buy insurance is when you don’t absolutely need it.
  • Using ETFs. TIPS may be attractive, and many financial advisers recommend a permanent 15% portfolio allocation to the class, but buying these bonds at periodic Treasury auctions or in the secondary market can be a pain. An ETF made up of TIPS is easier and more cost efficient.

For more stories on TIPS, visit our TIPS category.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.