SSgA plans to jump deeper into the TIPS market with two ETFs that span the zero- to 10-year portion of the yield curve.
State Street Global Advisors, the No. 2 U.S. ETF provider by assets, filed regulatory paperwork proposing two TIPS ETFs—a 0- to 5-year fund and a 1- to 10-year fund—in hopes to expand its reach into inflation-protected investment vehicles at a time of heightened concern about mounting inflationary pressures.
The two funds in this filing—the SPDR Barclays 0-5 Year TIPS ETF and the SPDR Barclays 1-10 Year TIPS ETF—would land on the short- and midterm maturation scale, as TIPS are issued with five-, 10- and 20-year maturity dates, heightening appeal to investors looking for tools to manage inflation over time.
TIPS—Treasury inflation-protected securities—hedge against inflation by adjusting principal based on movements of the consumer price index (CPI), one of the more popular benchmarks used to gauge inflation. If the CPI increases, principal payments from the issuer rise in kind to counteract the corrosive effects of inflation on bond returns. They’re also backed by the U.S. government, obviating credit risk.
A fair amount of anxiety is coursing through financial markets that all of the Federal Reserve’s easy-money policies designed to make borrowing cheaper and economic growth more possible in the wake of the 2008 crash will create inflationary pressures in the macroeconomy the likes of which the global economy hasn’t seen since perhaps the 1970s.
TIPS are very liquid bonds, allowing for relatively cheap expense ratios. SSgA hasn’t yet declared an expense ratio for either of these funds, but SSgA’s one existing TIPS ETF—the SPDR Barclays TIPS Fund (NYSEArca: IPE)—has an expense ratio of just 18 basis points, or $18 for each $10,000 invested. IPE has $760 million in assets under management.
There are currently 11 TIPS ETFs on the market, which pulled in $1.88 billion altogether over the past year, according to IndexUniverse data. The largest TIPS fund is the iShares Barclays TIPS Bond fund (NYSEArca: TIP), with $22 billion in total assets, making it the second-biggest bond ETF after the $24 billion iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD).
Short-term TIPS funds on par with the two in SSgA’s filing include the FlexShares iBoxx 5-Year Target Duration TIPS ETF (NYSEArca: TDTF), with $420 million in assets; and the Vanguard Short-Term Inflation-Protected Securities fund (NYSEArca: VTIP), which holds $189 million in assets and has a competitive expense ratio of just 10 basis points, making it a formidable opponent for the SPDR Barclays 0-5 Year TIPS ETF if and when that fund hits the market.
The funds in this filing don’t yet have tickers, but SSgA did say both will have their primary listings on Arca, the New York Stock Exchange’s electronic trading platform.