reluctantQuant

Why Investors Should Avoid TIP

Vindicator:
"SPDR DB International Government Inflation-Protected Bond ETF ... seeks results that correspond to ... DB Global Government ex-US Inflation Linked Bond Capped Index."

Holdings indications from
www.spdrs.com/product/...

You can download the holdings in a .csv file.
In no particular order, you've got some Euro, Brit, Brazil and Aussie, some Canada, Japan and Mexico IL bonds, among others. Each bond type is driven off a domestic CPI index, usually a sub-index off the headline CPI. For example, France uses the French CPI ex-tobacco (hilarious).

The "exact inflation measure" used is most easily looked up on a Bloomberg using the ISIN numbers (in the download file). Alternately, you can go to each countries' government treasury investor information webpages (hmm. enjoy).
--rq

On May 26 02:23 PM Vindicator wrote:

> Does anyone have a resource to identify the exact inflation measure
> used by the more significant holdings in WIP? Do any of them use
> US Govt CPI? Their own government's measure of inflation in their
> own single country? Some kind of govt or private measure of regional
> (Eurozone, for example) or global inflation?

Why Investors Should Avoid TIP

hmmm. lotsa stuff here... I'm in the "TIPs are good" camp, but I wouldn't say they're the perfect real asset, specially for that investor who can gain exposure to other real assets easily. But for the appropriate investor, especially the very long term retail investor, they are better than cash as a default asset. You can expect a REAL return on the order of 65 to 90 basis points. If you really do your homework, you might find that surprisingly good -- especially if retirement sufficiency with limited uncertainty is important to you.

With respect to this article, readers might note

1. Any grandma can buy TIPS directly, easily, from the U.S. Treasury, and NO grandma should be paying manager fees to BGI for something this simple. Any TIPS investor should be a very long term buy-and-holder, not a tactical investor who's doing a shorter term inflation dance. And in that scenario, even if it's only 20bps, ANY FEE IS A SIGNIFICANT DRAG ON *REAL YIELD*. If one wants TIPs, www.ustreasurydirect.gov will set you up cheaper than Schwabbie

2. Furthermore, these "real asset proxy" ETF's are not impressing the hell out of anyone with their tracking error. Yes, they can be very useful. Still, for fun, throw USO on a chart against WTI Crude and sing me the "it's a daily tracker" song again, please please. ETF's are generally great for tactical, but not for long term strategic - particularly when you CAN invest in the underlying cheaply and easily.

3. The big giggle idea above is that the government could ever be so well coordinated that they throttle the CPI data for the benefit of the U.S. Treasury's bond expense. Like "left hand number 1,765,234" knows what "right hand number 1,987,456" is doing. Mmm hmmm. With roughtly $5.8 Trillion par of UST's outstanding and like $480B of TIPs, what do ya get by nudging the par uplift a point or two on only 8% of the UST's outstanding par?

You equity guys are funny enough, but when you bring the conspiracy cats - then we really have a party going on,... tap that second keg, Jeeves!

--rq