iShares, the issuer behind the $20 billion Barclays TIPS Bond Fund (TIP), has introduced two new ETFs offering exposure to inflation-protected bonds from issuers outside the U.S. The new iShares ETFs include:
- International Inflation-Linked Bond Fund (ITIP): This ETF is linked to the BofA Merrill Lynch Global ex-US Diversified Inflation-Linked Index, a benchmark that includes inflation-linked sovereign debt denominated in the local currency of the issuer. ITIP includes both developed and emerging markets, making the biggest allocations the U.K. (14%), France (13%), and Brazil (13%).
- Global Inflation-Linked Bond Fund (GTIP): This ETF casts a slightly wider net, including U.S. TIPS along with international securities. The underlying BofA Merrill Lynch Global Diversified Inflation-Linked Index allocates about a third of total assets to the U.S., with the remainder spread across developed and emerging economies around the globe.
As concerns about massive injections of liquidity into financial markets and surging commodity prices have intensified, so too have worries about inflationary pressures. Many investors have turned to TIPS as a means of protecting their portfolios from climbing prices. The eight ETFs in the Inflation Protected Bonds ETFdb Category have aggregate assets of nearly $25 billion, and through the first four months of the year saw total inflows of nearly $1.4 billion. Yet options for exposure to TIPS issued by anyone but the U.S. government are limited; most of the existing products focus exclusively on domestic debt. “Just as investors use US TIPS to help protect domestic portfolios against inflation, they should consider using global inflation-linked bonds to help protect their global portfolios,” said Matthew Tucker, iShares Head of Fixed Income Investment Strategy at BlackRock. “A global investment approach requires a global inflation solution.” [Beyond TIP: Ten ETFs To Protect Against Inflation]
The existing SPDR DB International Government Inflation-Protected Bond ETF (WIP) offers ex-U.S. exposure, including inflation-protected bonds from developed and emerging markets issuers. WIP has become appealing because it offers dollar diversification as well as a relatively attractive current return–at least compared to many of the U.S.-only TIPS ETF options. ITIP will be most similar to WIP, while GTIP will give investors a way to access both domestic and international inflation-protected securities within a single ticker (a result that could be achieved through a combination of WIP and TIP currently).
Disclosure: No positions at time of writing.
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