As central banks around the world continue to plow money into the financial system, investors have been bracing for an eventual uptick in inflationary pressures. While reported inflation throughout the developed world has remained tame–most markets are well within their official “comfort zone”–anxiety over rising prices remains. When the global economy stabilizes and consumers become more able to bear price increases, many expect CPI to spike [see Black Swan Hyperinflation ETFdb Portfolio].
There are a number of different tools for combating inflation. Some swear by commodities, which logically tend to appreciate when inflation arrives. Others believe equities make for a good bet in inflationary environments. But perhaps the most common tool for “inflation-proofing” a portfolio are inflation-protected bonds, securities whose face value adjusts based on reported inflation metrics.
ETFs have become common vehicles for holding TIPS; the Inflation Protected Bonds ETFdb Category consists of more than a dozen exchange-traded products, including domestic and international funds, with aggregate assets of almost $30 billion [see a list of all ETFdb Categories].
The Pro member download from the Inflation Protected Bonds ETFdb Category page can be used to highlight the funds with the lowest expenses, highest dividend yields, and best historical performance [see a sample Excel download here; Pro members can download more than 60 ETFdb Category pages and 200 ETFdb Types pages with a free 7-day trial].
|Number of ETFs||13|
|ER Range||0.14% to 0.50%|
|Total Assets||$28.3 billion|
|As of June 6, 2012|
Cheapest TIPS ETFs
There is a relatively wide range of expenses for TIPS ETFs; some funds charge as little as 14 basis points while others (WIP) have expense ratios of up to 0.50% annually.
[Use the free ETF Screener to filter ETFs by sector and region exposure, as well as expenses and volume]
Commission Free TIPS ETFs
There are three ETFs in the TIPS ETFdb Category that are eligible for commission free trading, including:
- U.S. TIPS ETF (SCHP): Charles Schwab
- Barclays TIPS Bond Fund (TIP): Fidelity, TD Ameritrade
- SPDR DB International Government Inflation-Protected Bond ETF (WIP): TD Ameritrade
Most Heavily Traded TIPS ETF
On an average day, the ETFs in the TIPS ETFdb Category trade more than 1.7 million shares. The most heavily traded ETF in this category is the Barclays TIPS Bond Fund (TIP) , which has an average daily volume of about one million shares.
|Liquidity||Barclays TIPS Bond Fund (TIP)||A+|
|Expenses||U.S. TIPS ETF (SCHP)||A+|
|Performance||15+ Year U.S. TIPS Index Fund (LTPZ)||A+|
|Volatility||Barclays 0-5 Year TIPS Bond Fund (STIP)||A+|
|Dividend||SPDR DB International Government Inflation-Protected Bond ETF (WIP)||A+|
|Concentration||International Inflation-Linked Bond Fund ETF (ITIP)||A+|
[Get access to Realtime Ratings for 1,400+ ETFs with a free 7-day trial to ETFdb Pro]
Best Performing TIPS ETFs
Though TIPS are generally through of as a very safe asset class that exhibits low risk and low return, some of these funds have delivered huge gains recently. As of June 6, 2012, the best performing TIPS ETFs are as follows:
|1 Year||15+ Year U.S. TIPS Index Fund (LTPZ)||+27.84%|
|3 Years||SPDR Barclays Capital TIPS ETF (IPE)||+33.49%|
|5 Years||SPDR Barclays Capital TIPS ETF (IPE)||+49.54%|
|As of 6/6/2012|
Highest Yielding TIPS ETFs
TIPS ETFs aren’t generally known for high dividend payouts–the low risk involved generally translates into lower yields–but some products in this ETFdb Category have meaningful dividend yields (as of June 6, 2012):
- SPDR DB International Government Inflation-Protected Bond ETF (WIP): 4.52%
- Barclays TIPS Bond Fund (TIP): 2.98%
Most Balanced TIPS ETFs
When comparing potential ETF investments, it is important to evaluate how deep and balanced the underlying portfolios are. Depth refers to how many individual securities comprise an ETF, while balance refers to how “top heavy” a product is–what percentage of assets are concentrated in the ten largest individual positions.
- Deepest TIPS ETF: The International Inflation-Linked Bond Fund ETF (ITIP) has approximately 100 individual holdings. The 15+ Year U.S. TIPS Index Fund (LTPZ) and Barclays 0-5 Year TIPS Bond Fund (STIP) are the “shallowest” ETFs, with 10 and 14 individual holdings respectively.
- Most Balanced TIPS ETF: The International Inflation-Linked Bond Fund ETF (ITIP) has just 24.38% of its holdings in the top ten positions. At the other end of the spectrum, the 15+ Year U.S. TIPS Index Fund (LTPZ) has over 99% of assets in the top ten securities.
Disclosure: No positions at time of writing.
- PIMCO Launches Active TIPS ETF (ILB)
- Bond ETFs For Every Objective
- iShares Rolls Out International TIPS ETFs
- Inflation-Fighting ETFs Back In Focus
- TIPS ETFs: Looking Beyond TIP