iShares Launches TIPS ETF

BlackRock’s iShares exchange-traded funds (ETFs) business is launching the iShares Barclays 0-5 Year TIPS Bond Fund (NYSE Arca: STIP).

The fund offers targeted exposure to the short end of the domestic Treasury Inflation Protected Security (TIPS) curve through TIPS with less than five years to maturity. The new fund is intended to help investors seek protection against realized inflation, achieve additional portfolio diversification, or express a view on yields, according to a press release.  

Unlike other TIPS ETFs, STIP holds securities until maturity, meaning that securities acquired by STIP pay out inflation-adjusted income through the fund’s distributions and then return principle to the fund at maturity. These maturity proceeds are then used to purchase more TIPS securities. As a result of this mechanism, a greater percentage of an investor’s return in STIP is made up of inflation adjusted income relative to other TIPS funds.  

Barclays said TIPS as an asset class have two primary benefits to investors: 

  • Potential for inflation protection- a holder of TIPS receives compensation for increases in inflation. For STIP this compensation comes in the form of the monthly income distributions. As inflation rises, a holder of STIP will receive a larger monthly distribution.  
  • Diversification — TIPS have historically had a low correlation with other asset classes and thus provide diversification to a broad portfolio.