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Inverse TIPS ETF (TPS) Hits New 52-Week High

Zacks Equity Research

For investors seeking momentum, ProShares UltraShort TIPS (TPS) is probably on the radar now. The fund just hit a 52-week high, and shares of TPS are up roughly 8.3% from their 52-week low price of $25.75/share.


But could more gains be in store for this ETF? Let’s take a quick look at the fund and the near-term outlook to get a better idea of where it might be headed:


TPS in Focus


TPS looks to offer twice the inverse exposure of the daily performance of the U.S. TIPS bonds. TPS charges investors 95 basis points a year in fees (see all inverse bond ETFs here).


Why the Move?


The TIPs bond market has been under pressure lately on U.S. subdued inflation. The worry has been so acute that it is in fact restraining the Fed from enacting a lift-off after nine long years despite strong job gains, solid housing numbers, decent consumer confidence among citizens and impressive GDP growth.


The inflation pointer for the month of August added to the pessimism. On a monthly basis, U.S. consumer prices witnessed the first decline of 0.1% in seven months. On a year-over-year basis, consumer prices in the U.S. rose 0.2% in the month compared with the same rate in July and in line with analysts’ expectations. The reason behind this drop-off is mainly the commodity market slump, especially the fast-falling oil prices.


Since TIPS offers robust real returns during inflationary periods, these bonds tend to underperform when the inflation is low. As a result, an inverse approach to these TIPS bonds became crucial to win over this weak inflationary environment.


More Gains Ahead?


Zacks does not rank inverse and leveraged ETFs in view of their short-term performance objectives. Thus it is hard to make out its future returns one way or another. However, the fund has a positive weighted alpha of 2.42. A positive weighted alpha hints at more gains.


So, investors might play this product for a few more times but definitely with a short-term notion. As long as inflation concerns keep cropping up in the U.S. economy, this product will tend to add gains. However, a prolonged holding of the product might lead to losses.


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PRO-ULS TIPS (TPS): ETF Research Reports
 
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