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.