Thanks to Ben Bernanke’s $600 billion foray into the U.S. Treasury markets in the hotly debated QE2, many investors have begun to worry that a severe bout of inflation is right around the corner. Renewed anxiety has pushed Treasury Inflation Protected Bonds, or TIPS, to a negative yield in recent auctions, underscoring just how robust the demand is for these “real return” securities. Many investors have embraced ETFs as an efficient means of accessing inflation-protected fixed income securities, as evidenced by the huge cash flows into TIPS funds.
Far and away the most popular is the iShares Barclays TIPS Bond Fund (TIP), which has amassed over $20 billion in assets and trades more than 800,000 shares on an average day. While this fund remains one of the top choices for investors seeking inflation-protected securities, it solely focuses on the U.S. TIPS market, avoiding the both developed and emerging international markets. For investors seeking international exposure to the TIPS market, the only choice is the SPDR DB International Government Inflation-Protected Bond ETF (WIP) which offers heavy allocations to Western European, North American (ex-U.S.), and emerging market economies [read 2010: Year Of The Bond ETF].
Not surprisingly, the TIPS market may be headed for further expansion. In a recent filing with the SEC, PIMCO unveiled details on a proposed international-focused TIPS fund of its own, the Global Advantage Inflation-Linked Bond Strategy Fund. While the filing was light on some specifics–no expense ratio or detailed holdings information was included–the paperwork shed some light on what would be a first-of-its kind ETF [also see TIPS ETFs: Looking Beyond TIP].
The proposed ETF would be actively managed, with the manager generally maintaining an effective duration similar to that of the PIMCO Global Advantage Inflation-Linked Bond Index. The fund’s primary benchmark would be the Barclays Capital Universal Government Inflation-Linked Bond Index. The international TIPS ETF would invest in inflation-linked bonds that are economically tied to at least three countries–one of which may or may not be the U.S. [also see Bond ETFs: 12 Stops Along The Risk/Return Spectrum].
PIMCO: A Rising Power In The ETF World
PIMCO, the world’s largest bond manager, currently offers 13 fixed income ETFs, including four actively managed products. Though late to the ETF game, PIMCO has enjoyed great success in the space, thanks in part perhaps to the impressive track record and brand recognition among fixed income investors. PIMCO’s product line already includes three ETFs grouped into the Inflation-Protected Bonds ETFdb Category: Broad U.S. TIPS Index ETF (TIPZ), 15+ Year US TIPS Index ETF (LTPZ), and the 1-5 Year US TIPS Index ETF (STPZ). which is currently the most popular of all of PIMCO’s ETFs with over $600 million in assets. All three existing TIPS ETFs from PIMCO are passively-indexes products [also see iShares Files For Global TIPS ETF].
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Disclosure: No positions at time of writing.