Treasury Inflation Protected Securities ETF

While many people aren't worried about inflation right now, they are worried about it down the road. Along with purchasing hard assets like gold, investors can buy TIPS (Treasury Inflation Protected Securities) that provide returns slightly above the rate of inflation. An ETF that tracks the TIPS market is TIP, offered by iShares.

Below is a chart of TIP since the start of 2008. As shown, the ETF declined for most of 2008. However, since it bottomed last November, it is up 12.15%, which is considerably better than the 1.2% decline in the S&P 500.

click to enlarge

Comments

[Robert DiAl...:]

This is interesting but not something I am familiar with.

Apr 15 06:16 PM

[Alan Young:]

The best house in a bad neighborhood (i.e. US Treasury issues). Even though its return is based on a politically-manipulated CPI number, it will certainly outperform other bonds when inflation gets serious.

Apr 15 07:46 PM

[Toby:]

When you look at the holdings of the iShares TIP ETF, the fund appears to be leveraged. You have to look at the annual or 6-mo reports to find this information. For example the annual report shows:

$6.35 B in actual TIP bonds
$2.85 B in Money Market Funds
______
$9.20 B Total investments
-$2.79 B Liabilities
______
$6.41 B Net Investment

Can anyone explain what's going on with these 'liabilities'? Their other gov't bond funds appear to be run similarly.

Apr 16 01:12 PM

[zaparozhe:]

It all relates to securities lending. The fund lends their securities in exchange for cash collateral that is then invested in ST securities. They try to enhance yield by doing this. I am not a big fan of sec lending as there is generally more risk to this than many peiple expect. At the hight of the credit crisis AIG and others got tied up in their shorts trying to administer these sec lending operations and there are some funds out there that have had difficulty getting all their cash collateral back from their sec lending agent. I view securities lending as picking up nickels in front of a steamroller - if you, or your agent, trip you might be in pain. No free lunch on WS, if you haven't heard!

I own some TIP but I have been moving to individual bonds for several reasons. Primarily if you buy recently issued TIP bonds you will not have a decine in your principal if we have some deflation in the next year or so. With a TIP fund, they will own a number of old bonds that can lose principle in periods of deflation.


On Apr 16 01:12 PM Toby wrote:

> When you look at the holdings of the iShares TIP ETF, the fund appears
> to be leveraged. You have to look at the annual or 6-mo reports to
> find this information. For example the annual report shows:
>
> $6.35 B in actual TIP bonds
> $2.85 B in Money Market Funds
> ______
> $9.20 B Total investments
> -$2.79 B Liabilities
> ______
> $6.41 B Net Investment
>
> Can anyone explain what's going on with these 'liabilities'? Their
> other gov't bond funds appear to be run similarly.

Apr 22 12:03 PM

[big yankee:]

But, how does an individual investor make sure to purchase the newly issued TIPS? Is there an easy way or a fund that does that?


On Apr 22 12:03 PM zaparozhe wrote:

> It all relates to securities lending. The fund lends their securities
> in exchange for cash collateral that is then invested in ST securities.
> They try to enhance yield by doing this. I am not a big fan of sec
> lending as there is generally more risk to this than many peiple
> expect. At the hight of the credit crisis AIG and others got tied
> up in their shorts trying to administer these sec lending operations
> and there are some funds out there that have had difficulty getting
> all their cash collateral back from their sec lending agent. I view
> securities lending as picking up nickels in front of a steamroller
> - if you, or your agent, trip you might be in pain. No free lunch
> on WS, if you haven't heard!
>
> I own some TIP but I have been moving to individual bonds for several
> reasons. Primarily if you buy recently issued TIP bonds you will
> not have a decine in your principal if we have some deflation in
> the next year or so. With a TIP fund, they will own a number of old
> bonds that can lose principle in periods of deflation.

May 23 12:59 PM

[zaparozhe:]

you can actually go to the treasury's website and get the information on all their issues. Your broker or their website can also give you an issue date on each TIP bond - anything issued in the last year or 18 months will not have any inflation factor - it may even be below par, which you will pick up when the bond matures if there is ever a positive inflation factor. You broker or any online brokerage account will give you the inflation factor before you buy the bond and you should make sure it is close to or less than 1.00 or 100 (depending on how they list it, i.e. at par or less)




On May 23 12:59 PM big yankee wrote:

> But, how does an individual investor make sure to purchase the newly
> issued TIPS? Is there an easy way or a fund that does that?

Jun 18 03:04 PM