By Patrick Watson
Almost three months ago we remarked on the launch of PIMCO’s first ETF. We noted at the time that the bond fund giant had other products on the drawing board. Monday one of them appeared as PIMCO 1-5 Year TIPS Index Fund (NYSEARCA:STPZ) and began trading.
At first glance STPZ might look like other ETFs that cover the Treasury Inflation-Protected Securities niche, but there is a key difference. Competitors iShares Barclays TIPS Bond Fund (NYSEARCA:TIP) and SPDR Barclays Capital TIPS ETF (NYSEARCA:IPE) both have a significantly longer maturity target than STPZ.
TIPS bonds as well as the funds that own them are creatures of inflation expectations. When the market’s collective wisdom anticipates inflation within a certain time-frame, the TIPS covering that time-frame see higher demand. Hence, if you think inflation is a threat in the short-term but not the long-term, funds like TIP and IPE are of limited usefulness.
STPZ solves this problem nicely by limiting its maturity to five years, providing a new alternative for those who see inflation as more of an immediate threat. PIMCO also has plans for longer-maturity TIPS funds that will compete more directly with TIP and IPE. For now, they have the short end of the TIPS ETF niche all to themselves.