iShares Plans Short-Term TIPS ETF

September 17, 2010

iShares looks beyond current deflation concerns with plans for a TIPs ETF.

iShares, the biggest exchange-traded fund company in the world, filed papers with the Securities and Exchange Commission to offer a fund focusing on short-term U.S. Treasury protected inflation securities, or TIPS, at a time of investor uncertainty in the wake of the 2008-2009 market meltdown.

The iShares Barclays 0-5 Year TIPS Bond Fund will focus on Treasurys that have remaining maturity of less than five years. TIPS provide investors with inflation protection through periodic adjustments to their principal that are linked to changes in the
consumer price index.

The filing comes at a time when financial markets and the Federal Reserve are focused on the threat of deflation. But the Fed’s efforts to stimulate an economic recovery that appears to be losing steam are by their very nature inflationary. The central bank cut short-term interest rates to zero and has been buying Treasurys to push yields down to keep borrowing costs low.

So, tools like TIPS that minimize the effects of losing purchasing power can be attractive to investors when deflation is a bigger concern than inflation, because they are relatively cheap at such times.

The ETF will be based on the Barclays Capital U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Years Index (Series-L), according to the filing.

iShares, a unit of the biggest money management company in the world, BlackRock, didn’t say what symbol the ETF would have or how much its expense ratio would be.

Find your next ETF