Data indicate inflation is on the rise and investors are standing idly by. Rather, investors are flocking to exchange traded funds that hold Treasury Inflation Protected Securities (TIPS).
Investors will typically look at TIPS ahead of an inflationary period since buying TIPS after inflation has gone up means that the security has already priced in the inflation and investors would likely be overpaying for the TIPS exposure.
ETF investors can gain exposure to Treasury inflation protected securities through a number of options, including the iShares TIPS Bond ETF (NYSEArca: TIP), Schwab U.S. TIPS (NYSEArca: SCHP) and SPDR Barclays TIPS ETF (NYSEArca: IPE). TIP was one of the top ETFs last year in terms of new assets added.
Investors have recently been pouring into TIP, the largest TIPS ETF on the market, and SCHP, one of the least expensive ETFs offering exposure to this asset class. In just the past two weeks, TIP has added nearly $550 million in new assets and the 10 largest TIPS ETFs are a 10-week inflows streak, according to Bloomberg.
TIPS are a type of Treasury security that is indexed to inflation as a way to shield investors from the negative effects of inflation. The securities’ par value rises with inflation as measured by the Consumer Price Index while interest rate remains fixed. TIPS also offer investors another layer of diversification as many aggregate bond funds exclude TIPS from their holdings.
Potential investors should also be aware that TIPS are generally more volatile than traditional nominal Treasuries due to the inflation adjustments to their principal value.
TIPS ETFs are indexed to inflation as a way to shield investors from the negative effects of inflation. The securities’ par value rises with inflation as measured by the Consumer Price Index while interest rate remains fixed.
“SCHP is a good idea for cost-conscious investors looking to combat rising prices as it charges just 0.07% per year, well below the annual fee of 0.2% on TIP. Investors have added $132.3 to SCHP this year after pouring over $785 million into the fund last year. Said another way, SCHP is six and a half years old and has accumulated more than half its assets under management in just the past 14 months,” reports Investopedia.
For more information on Treasury inflation protected securities, visit our TIPS category.
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.