New Ultrashort TIPS ETF Combats Inflation

F/m Investments is going after the estimated $25 trillion cash management space with an ETF strategy designed for inflation protection while limiting interest rate risk.

The F/m Ultrashort Treasury Inflation-Protected Security ETF (RBIL), little changed in its first day of trading Tuesday, is being marketed as the first ETF to invest exclusively and continuously in ultrashort Treasury Inflation-Protected Securities with an average duration of less than one year.

“We’re buying TIPS about to expire within 13 months,” said Alex Morris, chief executive of the Washington, D.C., ETF issuer. Other TIPS-based ETFs, he said, may carry additional duration that can negatively impact performance in periods of rising inflation.

Those kinds of inflationary periods are generally associated with rising rates that can have a negative effect on longer-duration bonds.

The US Treasury Department issues TIPS with five-, 10- and 30-year maturities. That means the RBIL strategy is to go into the market and find TIPS within a year of expiration.

RBIL Rides Inflation with Maturing TIPS

Morris describes RBIL as an alternative to traditional TIPS investing, which did not serve investors well when inflation started spiking in 2021.

“If you bought TIPS in 2021, by the end of 2022 you had lost money and the reason is duration,” he said. “That’s when advisors start getting calls, investors are upset and all the money flows out of TIPS.”

Mark Spindel, senior advisor to F/m Investments, said the RBIL strategy was created for investors seeking to generate income from their cash positions. Investors currently have $7 trillion stashed in money market funds and more than $18 trillion in bank deposits and other cash-equivalent accounts, according to F/m's announcement of the new fund.

“RBIL is competing with money market funds and with no credit risk,” he said.

Spindel said the current yield target for RBIL is “4.5% or maybe a little more.”

“The income of this ETF will tick along with CPI,” he added. “The bond principle grows every day with CPI.”

F/m Investments has $16 billion under management and its flagship fund is the $4.9 billion US Treasury 3 Month Bill ETF (TBIL).