With the threat of inflation constantly circling in investors’ minds, it’s no wonder that Treasury inflation-protected securities (TIPS) saw record inflows during the month of October.
Inflation, as evidenced in the benchmark consumer price index (CPI), hit a three-decade high during the month of October. As such, investors sought various ways to try and stymie the effects of inflation, which includes the default TIPS exposure.
“Bond ETFs took in a respectable $17 billion, but were driven by a record-setting $6 billion of inflows into TIPS and almost $3 billion of flows into below-investment-grade credit,” a State Street Global Advisors report notes.
“Yet, with inflation proving to be less transitory than originally thought, interest in Treasury Inflation-Protected Securities (TIPS) ETFs continues to accelerate,” the report adds. “TIPS funds took in a record $6 billion last month, their 18th month in a row with inflows (a time period when flows have never been below $1 billion).”
A TIPS ETF to Consider
In today’s contentious market environment where inflation is rampant, one ETF to consider is the Invesco PureBeta 0-5 Yr US TIPS ETF (PBTP ). The principal balance of TIPS increases as inflation rises, and investors are paid the original balance or the inflation-adjusted balance, whichever is greater.
PBTP seeks to track the investment results of the ICE BofA 0-5 Year US Inflation-Linked Treasury Index. The fund generally will invest at least 80% of its total assets in the securities that comprise the underlying index.
The index is designed to measure the performance of the shorter-maturity subset of the U.S. TIPS market, represented by TIPS with a remaining maturity of at least one month and less than five years. Fewer years means that investors are less exposed to duration risk.
“The Invesco PureBeta 0-5 Yr US TIPS ETF tracks an index of inflation-protected securities backed by the U.S. government,” an ETF Database analysis says. “The fund invests in debt with a remaining maturity of less than five years. The mix of short- and medium-term duration also gives the fund some protection against rising interest rates, which tend to put a larger dent in the value of longer-dated Treasurys.”
“PBTP may be a good choice for investors who want the safety of U.S.-backed government debt, but are also worried that a sudden surge in inflation — and the likelihood of a resulting interest rate hike — will drag down the value of longer-dated Treasurys,” the analysis says further.
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