TIPS ETF With A Twist Debuts

October 04, 2018

Today Goldman Sachs launched another addition to its Access family of bond ETFs. The Goldman Sachs Access Inflation Protected USD Bond ETF (GTIP) tracks an index that the issuer developed in collaboration with FTSE Russell.

GTIP comes with an expense ratio of 0.12% and lists on Cboe Global Markets, the parent company of ETF.com.

Twist In The Methodology

The Treasury inflation-protected securities (TIPS) market is a limited one, with only about 40 different issues falling into the category. GTIP’s index, however, is fairly selective, and does not take a comprehensive approach to the market, for a very good reason.

New issues are excluded from the benchmark until they have become seasoned, because they can see upward pressure on prices from investors forced to buy the new securities, according to Goldman Sachs Asset Management Managing Director Jason Singer.

For example, fund managers constrained by an index that requires them to buy new issues can end up purchasing those securities at any price, further driving up the price and potentially distorting it. GTIP’s index seeks to avoid this by excluding new issues from consideration and moving into those securities once they are beyond that initial spike.

“Our whole view is that if you’re not forced to buy them at any cost, you effectively acquire similar exposure and a better risk-adjusted return,” Singer said. He notes that the index so far has delivered a few basis points of extra return with similar levels of volatility.

“We’re able to give clients a better and a smoother ride,” he added.

Fund Specifics

The index’s universe is limited to securities with at least one year to maturity and an issuance size of at least $5 billion outstanding. From there, the newer issues are excluded and the remaining constituents are weighted to match the “weighted average real yield duration” of the overall selection universe, the prospectus says.

The index included 36 issues as of the end of June. Its average weighted maturity was 8.3 years, while its weighted average duration was 7.8 years, according to the document.

With inflation an increasing concern, investors are becoming more interested in TIPS and products providing exposure to them. Goldman Sachs has launched a differentiated product at a price point that is in the middle of pack and considerably cheaper than the leading ETF in the space. The iShares TIPS Bond ETF (TIP) has $23.6 billion in assets under management and comes with an expense ratio of 0.20%. The second-largest fund in the segment, however, is the Schwab U.S. TIPS ETF (SCHP), with $5.7 billion in assets and a rock-bottom price of just 0.05%.

“As with the rest of our suite, we’re really reacting to client demand,” said Michael Crinieri, GSAM’s global head of ETF Strategy. “Increasingly, our clients are allocating to inflation-protected Treasurys.”

GTIP is the fourth fund in Goldman Sachs’ Access ETF family targeting the fixed-income space, the largest of which is the roughly $2 billion Goldman Sachs Access Treasury 0-1 Year ETF (GBIL). All of the funds in the family track FTSE Russell indexes developed with input from Goldman.

Contact Heather Bell at [email protected]

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