Treasury Inflation-Protected Securities (TIPS) are an often misunderstood fixed-income asset class. Some investors hear “inflation-protected” and assume that TIPS returns are perfectly correlated to changes in inflation. In reality, however, they are not. Learning more about the nuances, mechanics, and potential benefits of TIPS can help you integrate this asset class into portfolios.
TIPS ETFs pay out all earned income in the portfolio, including an inflation adjustment that is applied to the fund’s underlying securities, based on three months’ prior CPI. With individual TIPS, the inflation adjustment is received only at maturity. The lag associated with the payment is because the reference CPI for TIPS for the first day of any calendar month is actually the CPI published for the third prior calendar month.
One of the complicating issues of using individual TIPS is that investors must pay taxes each year on the inflation adjustment to the principal even though the inflation adjustment isn’t received until the bond matures. ETFs avoid issuing this “phantom income” by distributing all inflation adjustments (classified as Treasury income) as they are accrued. This turns phantom income into realized cash flows.
What is the Best TIPS ETF?
- BBIP: Jpmorgan Betabuilders U.S. Tips 0-5 Year ETF
- CPII: Ionic Inflation Protection ETF
- DFIP: Dimensional Inflation-Protected Securities ETF
- FLTN: Rareview Inflation/Deflation ETF
- GTIP: Goldman Sachs Access Inflation Protected USD Bond ETF
- IRVH: Global X Interest Rate Volatility & Inflation Hedge ETF
- IVOL: Quadratic Interest Rate Volatility and Inflation Hedge ETF New
- LTPZ: PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund
- PBTP: Invesco 0-5 Yr US TIPS ETF
- SCHP: Schwab U.S. TIPS ETF
- SPIP: SPDR Portfolio TIPS ETF
- STIP: iShares 0-5 Year TIPS Bond ETF
- STPZ: PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund
- TDTF: FlexShares iBoxx 5-Year Target Duration TIPS Index Fund
- TDTT: FlexShares iBoxx 3-Year Target Duration TIPS Index Fund
- TIP: iShares TIPS Bond ETF
- TIPX: SPDR Bloomberg 1-10 Year TIPS ETF
- TIPZ: PIMCO Broad U.S. TIPS Index Exchange-Traded Fund
- VTIP: Vanguard Short-Term Inflation-Protected Securities Index Fund
Here is a table comparing similar TIPS ETFs as of August 31, 2023.
| Manager |  |  |  |  |  |  |
| ETF | STIP | SCHP | TDTT | PBTP | LTPZ | SPIP |
| Inception | 2010-12-01 | 2010-08-05 | 2011-09-19 | 2017-09-22 | 2009-09-03 | 2007-05-25 |
| AUM | $9,843,997,674 | $11,647,134,270 | $1,930,000,000 | $78,000,000 | $632,018,334 | $1,580,590,000 |
| MER | 0.03% | 0.04% | 0.18% | 0.07% | 0.20% | 0.12% |
| WAM | 2.62 | 7.2 | 3.52 | 2.08 | 21.82 | 7.56 |
| Yield | 2.50% | 4.78% | 3.36% | 2.23% | 4.48% | 3.28% |
| Distributions | Monthly | Monthly | Monthly | Monthly | Monthly | Monthly |
| 1Y | 0.48% | -3.68% | -0.82% | 0.09% | -11.74% | -3.91% |
| 3Y | 1.95% | -1.48% | 1.28% | 1.82% | -9.71% | -1.85% |
| 5Y | 2.83% | 2.26% | 2.89% | 2.71% | 0.10% | 2.14% |
| 10Y | 1.74% | 2.06% | 1.66% | N/A | 2.27% | 2.00% |
