Treasury Inflation Protected Securities Funds

Includes: TIP, WIA, WIW
by: Roger Nusbaum

This just in; inflation is very low, as reported in the CPI, writes Roger Nusbaum. At some point it may move up a lot. I don't mean like it was in the
1970's but it is not impossible that we could have a stretch of 5% or 6% inflation at some point in the next ten years. A shake up in the dollar combined with higher commodity costs could be the path to this situation.

If this happens Treasury Inflation Protected Securities aka TIPS will do very well. It makes sense to think about this now when inflation seems to be low. You can buy TIPS directly from the Fed there are also many OEFs available. I wrote about these once before, I am not much of a fan of them.

There is one ETF, the iShares Lehman TIPS Fund (ticker: TIP). There are also at least two closed-end funds (CEFs) too. I spent a long time on ETFconnect looking for others but did not find any. If you know of one please let me know.

The two CEFs are sponsored by Claymore Securities and managed by Western Asset. The two have very similar names and symbols. First is Western Asset/Claymore US Treasury Inflation Protected Securities Fund (ticker: WIA). It invests 80% in TIPS and the rest in US corporate bonds. It yields 6% and trades at a 7.5% discount. The other is the Western Asset/Claymore US Treasury Inflation Protected Securities Fund 2 (ticker: WIW). It yields 6.5% and trades at an 8.8% discount. WIW is 80% TIPS and up to 20% in Yankee bonds. Yankee bonds are foreign bonds (in WIW's case it means emerging market bonds) denominated in US dollars.

I think in time there will be more ways to access the TIPS market but this is all I can find for now. For disclosure, I own WIW. A lot of clients own WIW and some own WIA.

Don't take this as a prediction for a turnaround inflation right now. I am just trying to think ahead a little bit.