Sunday, October 4, 2009

Treasury inflation protected securities ETF

Right now we are globally in period of low interest rates and low inflation rate. In some economies even with deflation. What should we do when inflation will start to rise again? How to invest money when inflation is inching up?

The best investments against inflation are investing in gold, index linked bonds, national savings index linked certificates, shares and property.

I will focus more on less risky inflation protected securities like TIPS (Treasury inflation protected securities) or "linkers" (inflation indexed bonds/gilts). Coupon payments reflect rising inflation and/or interest rates. TIPS are generally one of the safest investments. It should be a part of retirement or standard portfolio for better diversification.

There are already some ETFs following TIPS indexes like iShares Barclays TIPS Bond (TIP) or SPDR Barclays Capital TIPS (IPE). Recently PIMCO launched their exchange traded funds for inflation hedging PIMCO BROAD U.S. TIP (TIPZ) and PIMCO 15+ Yr. US TIPS Index Fund (LTPZ) and PIMCO 1-5 Year US TIPS Index Fund (STPZ).

These funds protect against US inflation. International exposure provides fund SPDR DB Intl Govt Infl-Protected Bond (WIP) which access inflation protected securities in 18 countries. Around 70 % of its portfolio come from foreign developed countries and 30 % from emerging markets. Regionally holdings include securities from France, UK, Canada, Japan, Brazil, Turkey or South Africa. Contrary to US TIPS this fund offers another diversification against weakening US dollar as international bonds are in 15 different currencies.


4 Responses to "Treasury inflation protected securities ETF"

Anonymous said... October 5, 2009 at 3:45 PM

There is an error here -- the ticker for the PIMCO 15+ Yr. US TIPS Index Fund is LTPZ. Moreover, the firm also offers the PIMCO 1-5 Year US TIPS Index Fund (Ticker: STPZ)

Vlada, Czech Republic said... October 5, 2009 at 4:10 PM

Thank you for notification. I have corrected the error and added last PIMCO fund STPZ

Anonymous said... December 29, 2009 at 11:45 PM

Also what?

Lawrence J. Kramer said... January 12, 2010 at 10:47 PM

TIPS are safe for the owner, as an owner, but they are bad for the owner as a taxpayer (if he IS a taxpayer). That's because the inflation-protection element is nothing but a credit default swap, protecting against the way governments default, i.e., monetization of their debt. As a taxpayer, if I buy a TIPS, I probably won't take any action to make the inflation protection pay off. But if I'm a foreign government, maybe my interests aren't so clear. Maybe I'm a big exporter of, you know, toys and clothes and such, and I buy TIPS in anticipation of revaluing my currency upward. Maybe I sell bonds I own to pay for the TIPS, so that all I'm really buying is the credit default swap. Just a thought...