Investors ditched the iShares TIPS Bond ETF (TIP) to the tune of more than $2 billion in January, marking the first major outflow for one of the most crowded trades against decades-high inflation in the second half of 2021.
The largest ETF dedicated to following inflation-protected Treasury bonds saw just over $1.1 billion in outflows on Jan. 31, doubling the month’s prior outflows on the last day of the month to a total outflow of nearly $2.2 billion.
The last time the fund posted any monthly outflow was June 2021, when it recorded a mild $140 million in outflows, according to FactSet data.
Inflation-protected Treasury bonds are securities that are adjusted for par value based on the Consumer Price Index, while their interest rate remains fixed until maturity. Demand for those bonds heated up in May after the CPI hit 5% year-over-year and continued to soar during the latter half of 2021, with TIP taking in $12 billion in net assets over the year.
Rotating Into Other TIPs ETFs
A prime reason for the outflows of TIP is because of its relatively high duration of 7.6 years, making it more likely to lose value at a time when the Federal Reserve is expected to hike interest rates multiple times through 2022, and with Fed Chairman Jay Powell in his last press conference not ruling out a 50 basis point hike.
That benefits shorter-duration TIPS funds like the iShares 0-5 Year TIPS Bond ETF (STIP), the Invesco PureBeta 0-5 Yr U.S. TIPS ETF (PBTP), the PIMCO 1-5 Year US TIPS Index ETF (STPZ) and the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP). The four funds have durations below 3 and have taken in a combined $1.1 billion in assets year-to-date.
|Ticker||Fund Name||Effective Duration (Years)||YTD Flows|
|TIP||iShares TIPS Bond ETF||7.6||-2421859670|
|SCHP||Schwab US TIPS ETF||7.6||-10711500|
|SPIP||SPDR Portfolio TIPS ETF||8.2||-56286487.9|
|TIPZ||PIMCO Broad US TIPS Index ETF||8.2||19287000|
|GTIP||Goldman Sachs Access Inflation Protected USD Bond ETF||7.5||4311500|
|STIP||iShares 0-5 Year TIPS Bond ETF||2.4||588937790|
|PBTP||Invesco PureBeta 0-5 Yr US TIPS ETF||2.4||4982820|
|STPZ||PIMCO 1-5 Year US TIPS Index ETF||2.9||82585000|
|VTIP||Vanguard Short-Term Inflation-Protected Securities ETF||2.5||389525834.4|
|LTPZ||PIMCO 15+ Year US TIPS Index ETF||20.7||-145449000|
Data as of 2/4/2022