ETFs and mutual funds that invest in Treasury Inflation Protected Securities are experiencing outflows as investors pull back on bets that loose monetary policies from central banks will trigger runaway inflation.
For example, iShares Barclays TIPS Fund (NYSEARCA:TIP) has seen some of the heaviest outflows this year among U.S.-listed ETFs with net redemptions of $1.7 billion, according to IndexUniverse.
"With such weak labor markets, flat income growth and flat wages, commodities weak, we won't see the inflation that the TIPS market is pricing in," Dan Hickman, fixed income strategist with US Bankcorp, said in a Bloomberg story.
About $2.3 trillion has been poured into the financial sector since 2008, and inflation has been kept to a minimum, reports Daniel Kruger and Cordell Eddings for Bloomberg. Wage growth has been minimal, at 1.9%, compared to an average of 3.1% over the prior three years.
Large firms such as U.S. Bancorp to Federated Investments that had previously bought TIPS and other government securities have been selling off these instruments, marking the longest running sell-off of these investments since 2008, according to Morningstar data.
The iShares Barclays TIPS Fund and the FlexShares iBoxx 3-Year Target Duration TIPS (NYSEARCA:TDTT) are among some of the most popular TIPS ETFs. TIP is the largest fund trading in this sector and is down about 1% over the past week. TDTT has dropped about 0.2% over the same time period. The SPDR DB International Government Inflation-Protected Bond ETF (NYSEARCA:WIP) is also down about 0.2% over the past week, while the PIMCO 1-5 Year US TIPS Index Fund (NYSEARCA:STPZ) is down about 0.3%.
"We're not inflationary hawks in 2013," Bill Gross said in a Feb. 22 interview with Bloomberg. "We simply think because central banks are writing trillions of dollars worth of checks, ultimately that will produce the desired inflation they are targeting."
iShares Barclays TIPS Fund
Tisha Guerrero contributed to this article.
Full disclosure: Tom Lydon's clients own TIP.