TIPS, meanwhile, have been hurt by low inflation and higher Treasury yields. [Rising Rates and Low Inflation a Toxic Mix For TIPS ETFs]
Yet John Wasik at Reuters writes that TIPS funds may be a useful and less skittish way to hedge inflation than gold.
“While TIPS yields are also lackluster in a low-inflation environment, they can better protect against longer-term inflation expectations. Because they are indexed to a well-known index that tracks consumer prices, they are much less volatile and boost yield when inflation rises,” Wasik said.
He even holds TIP, the inflation-indexed bond ETF, in his 401(k) account, although he adds that so far inflation hasn’t been a problem.
“Why would I recommend a fund that’s lost money? Because I think that although short-term inflation fears have been wrong, prices will gradually accelerate across the board as the economy heats up in coming years,” Wasik wrote. “Now’s the time to buy TIPS, not when inflation is in full force. If the economy continues on its upward trajectory, prices usually follow.”
Full disclosure: Tom Lydon’s clients own TIP and GLD.