ETF Spotlight on iShares Barclays TIPS Bond Fund ETF (NYSEARCA:TIP), part of an ongoing series.
Assets: $22.2 billion.
Objective: The iShares Barclays Treasury Inflation Protected Securities Bond fund tries to reflect the performance of inflation-protected U.S. Treasuries on the Barclays Capital U.S. Treasury Inflation Protected Securities Index.
Holdings: High quality TIPS bonds with credit ratings of Aaa/AA+ with an average maturity date of 9.21 years and an average coupon of 1.82%.
What You Should Know:
- BlackRock's iShares ETF division sponsors the fund.
- TIP has an expense ratio of 0.2%.
- The fund includes 35 securities, with the top 10 accounting for 44.7% of the overall portfolio.
- The ETF has a 30-day SEC yield of 0.36%.
- TIP is down 1.1% over the past month, up 0.3% over the past three months and up 11.6% over the last year.
- The fund is 1.7% above its 200-day exponential moving average, but recently crossed below its 50-day exponential moving average.
- "TIPS principal is linked to changes in the Consumer Price Index and provides an effective hedge against inflation in an investor's portfolio relative to standard Treasury bonds," according to Morningstar Analyst Timothy Strauts. "As the CPI rises, the principal in the individual TIPS is adjusted upward. The coupon on the bond is then paid on the higher principal, which raises the overall effective yield of the security."
- "Investors can check what is known as the "inflation break-even" rate by comparing the 10-year Treasury bond yield with the 10-year TIPS yield," Strauts added. "The difference is the rate at which inflation would have to be above over the next 10 years in order for an investor to be better off owning the TIPS than the Treasury bond."
The Latest News:
- TIPS have provided healthy returns as interest rates declined since 2007, but the play is bottoming out, reports Tim Mclaughlin for Reuters.
- "It would be unwise to count on such impressive performance continuing," Vanguard Chairman William McNabb said in the report.
- Total assets in TIPS funds have increased $27.1 billion, or 26%, over the past year to $131.4 billion as of the end of January, according to Lipper data.
- "We've had such a decline in interest rates you wonder if investors are chasing returns or are they seriously concerned about inflation," Gemma Wright-Casparius, co-manager of the Vanguard Inflation-Protected Securities Fund, said in the report.
- "Investors need to be aware of interest rate risk," Morningstar mutual fund analyst David Falkof said.
iShares Barclays TIPS Bond Fund
Max Chen contributed to this article.
Disclosure: I am long TIP. Tom's clients own TIP.