$1.5B Flows Into 2 TIPS ETFs

August 28, 2019

Over the past week, nervy investors have plowed almost $1.5 billion into two Treasury inflation-protected securities (TIPS) ETFs, the $8.1 billion Schwab U.S. TIPS ETF (SCHP) and the $6.8 billion Vanguard Short-Term Inflation-Protected Securities ETF (VTIP).

In the week ending Aug. 26, SCHP saw net new inflows of $973 million, more than any other ETF, while VTIP saw $507 million in new assets invested.

 

Source: ETF.com Fund Flows Tool; data as of Aug. 27, 2019 

 

Meanwhile, the largest TIPS ETF, the $20.3 billion iShares TIPS Bond ETF (TIP), saw inflows of only $59 million over the same period.

Rate Cuts Spur TIPS Buying

Investors are moving into TIPS funds over other types of bond ETFs due to the Fed's recent rate cuts.

In July, the Federal Reserve cut its benchmark interest rate by a quarter point, the first such cut in over a decade. It likely won't be the last: According to the Wall Street Journal, interest rate futures are pricing in a 95% probability that the Fed will again lower rates by the same amount at its September meeting.

Many investors think that could once again spur inflation, says Todd Rosenbluth, head of ETF and mutual fund research for CFRA.

"The latest Federal Reserve minutes highlighted that many viewed the first rate cut in a decade as insurance against too low inflation," he said.

As such, "Investors are taking advantage of the inflation protection tools available in the ETF wrapper," he added.

Cost Cutting Also A Factor

There is likely another factor at play here, too: fees. Of the 14 TIPS ETFs on the market, SCHP costs the least. Its expense ratio is just 0.05%.

Meanwhile, VTIP is tied with the PIMCO 0-5 Year TIPS Index ETF (STIP) for second-cheapest, at 0.06%.

In comparison, TIP costs 0.19%.

Other Bond ETFs Gain

Other bond ETFs also saw high inflows over the past week. The $13.9 billion iShares U.S. Treasury Bond ETF (GOVT), which holds Treasuries of maturities of one year or higher, saw inflows of $938 million. GOVT isn't the largest Treasury ETF, but it is the largest broad market one.

The $12.5 billion PIMCO Enhanced Short Maturity Active ETF (MINT) took in $349 million. MINT, an active fund, seeks higher returns and greater incomes via ultra-short-term debt, making it an attractive alternative to cash. Currently, the fund's average maturity is 0.25 years.

Finally, the perennial trading vehicles SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD) took in $756 million and $460 million, respectively. Large swings in flows for these two ETFs are nothing new, however.

Contact Lara Crigger at [email protected]

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