It is not the first exchange traded fund to invest in Treasury Inflation-Protected Securities, but the TIPS ETF launched today by Pacific Investment Management Co. of Newport Beach, Calif., may quickly become the fan favorite, according to a Morningstar anaylst.
The Pimco 1-5 Year U.S. TIPS Index Fund (STPZ) focuses specifically on the short maturity segment of the TIPS market.
“This one really hits the sweet spot,” said John Gabriel, an ETF analyst with Morningstar Inc. of Chicago.
As opposed to the iShares Barclays TIPS Bond Fund (TIP) distributed by Barclays Global Investors of San Francisco, the SPDR Barclays Capital TIPS ETF (IPE) from State Street Global Investors of Boston, and the SPDR DB International Government Inflation-Protected Bond ETF (WIP), all of which skew to the intermediate maturity segment, the Pimco ETF offers investors a potentially higher degree of protection against the effects of inflation, Mr. Gabriel said.
In a sign that inflation is a growing worry, year-to-date through July 31, investors sent $5.8 billion into the three ETFs that invest in TIPS and a net of $9.6 billion into 40 inflation-protected bond mutual funds tracked by Morningstar (see today's
InvestmentNews article
“Scared investors flock to TIPS as inflation hedge.”
In early September, Pimco plans to launch two additional TIPS ETFs.
The Pimco 15+ Year U.S. TIPS Index Fund (LTPZ) will focus on long-dated TIPS that are intended to hedge long-term spending needs against interest rate and inflation risks, Pimco said in a statement.
And the Pimco Broad U.S. TIPS Index Fund (TIPS) will offer investors TIPS exposure across the maturity spectrum.
“Inflation hedging should play a strategic role in investors' asset allocation, particularly as we head toward a ‘new normal' where lower growth, increasing U.S. government debt and unprecedented fiscal stimulus could over time raise the potential for higher price pressures than have been seen in recent decades,” Vineer Bhansali, a managing director and portfolio manager with Pimco, said in the statement.
Investors, however, should be cautious of any TIPS products, said Tom Lydon, president of Global Trends Investments, a Newport Beach, Calif.-based firm that manages $75 million in assets.
“Some experts say TIPS have never truly been tested in an environment of rampant inflation, so these are going to be closely watched in the coming months if inflation takes place,” he said. “Investors should be mindful of this.”
