TDTT, which debuted nearly six years ago and has over $2 billion in assets under management, carries a bronze rating from Morningstar. Other ETFs in this category include Vanguard Short-Term Inflation-Protected Securities ETF (NYSEArca: VTIP), PIMCO 1-5 Year US TIPS Index ETF (NYSEArca: STPZ), iShares Barclays 0-5 Year TIPS Bond (NYSEArca: STIP) and the FlexShares iBoxx 5Yr Target Duration TIPS ETF (NYSEArca: TDTF).
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.
Related: Using ETFs to Manage Inflation Risks
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.
“Given the reduced interest-rate risk, this fund would continue to exhibit a direct relationship with the CPI and inflation changes. The primary source of the fund’s return is the inflation-indexed coupon payments because the short duration minimizes the price volatility. This fund could be a good option for an investor looking for an instrument that closely reflects immediate shifts in CPI and inflation,” according to Morningstar.
For more information on Treasury inflation protected securities, visit our TIPS category.