New TIPS Inflation Gage Index Launches: Is an ETF Next?

By Murray Coleman

Investors worried about inflation fears may soon have a new way to tap into the Treasury Inflation-Protected Securities market to more actively manage those risks.

The investment banking division of London-based financial giant Barclays Bank has launched an index that automatically shifts between long- and short-term TIPS based on market sentiment indicators. The benchmark's called the Alogrithmic Inflation Momentum Switching [AIMS] index.

"In today's environment of mixed inflationary and deflationary fears, strategies that extract value without strong adherence to a view have particular appeal to investors," Pradeep Jhanjee, a Barclays Capital director, says in a release.

The AIMS index is designed to capture movements by markets within TIPS markets. It also tracks market participants' shifts between nominal bonds to TIPS. "As the nominal bond market is a substantial multiple of the TIPS market, the switching results in an exaggerated demand for, or supply of, TIPS," Barclays says.

Exposure to such a strategy can be delivered in several ways, the firm notes. Those include tracking principal protected structured notes and over-the-counter derivatives.

Considering that Barclays Capital acts as the agent for all iPath ETNs, which are issued by its parent bank, it probably isn't a stretch to expect at some point see the index made available as an ETF or exchange-traded note.

Of course, Barclays also owns Barclays Global Investors, the largest sponsor of ETFs in the world.

With the expedited process now available to ETF sponsors through recent regulatory reforms by the Securities and Exchange Commission, perhaps it's possible BGI or Barclays Capital might be able to produce an investable product along these lines sooner rather than later.

Stay tuned ...

(If you'd like to read more about the index in the meantime, try: looking here.)