As inflation begins to pick up, fixed-income investors may be better off with Treasury inflation protected securities and related exchange traded funds.
TIPS are a good hedge against rising prices ahead. TIPS returns are affected by interest-rate risk as well as changes in the principal value when the Consumer Price Index moves. TIPS will adjust their principal value upward in response to a higher CPI, but the reverse occurs during periods of deflation.
“I like TIPS,” Gundlach, chief executive officer of DoubleLine Capital, said at a conference, according to Bloomberg. “TIPS are for winners.”
Pacific Investment Management Co. and Goldman Sachs Asset Management, among others, have also warmed up to TIPS and believe the asset could continue to outperform ahead. PIMCO has been recommending TIPS in a continuation of a long-standing view while Goldman Sachs said it was taking a long position on the securities on higher inflation expectations.
The securities have returned 7.5% in 2016, compared with a 4.5% gain for nominal U.S. sovereign debt. Year-to-date, the iShares TIPS Bond ETF (NYSEArca: TIP) rose 7.2%, Schwab U.S. TIPS (NYSEArca: SCHP) gained 7.1% and SPDR Barclays TIPS ETF (NYSEArca: IPE) increased 7.6%.