PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund (ARCA: STPZ)

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PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund

The fund invests at least 80% of its total assets (exclusive of collateral held from securities lending) in the component securities of the ICE BofA 1-5 Year US Inflation-Linked Treasury Index (the underlying index). The underlying index is an unmanaged index comprised of Treasury Inflation-Protected Securities (TIPS) with a maturity of at least 1 year and less than 5 years.

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BlackRock apuesta por bonos ligados a la inflación ante el aumento de la prima de riesgo y dudas sobre la sostenibilidad fiscal en EE. UU.

BlackRock sobrepondera bonos ligados a la inflación ante riesgo fiscal en EE. UU.

Global investment giant BlackRock has announced being &#8220;overweight&#8221; on inflation-linked bonds, signaling a strategic shift to mitigate risks stemming from &#8220;persistent inflation pressure&#8221; and growing concerns over the sustainability of U.S. government finances.
What Happened: This move comes as the firm navigates a complex economic landscape characterized by transformative &#8220;mega forces&#8221; and a challenging outlook for long-term asset allocation.
A key driver for BlackRock&#8217;s pivot to inflation-linked bonds is the mounting pressure on U.S. fiscal sustainability.
The firm specifically cited <a href="https://www.benzinga.com/news/econ-s/25/05/45479078/moodys-downgrades-us-credit-rating-over-debt-deficit-concerns">Moody&#8217;s recent downgrade</a> of the U.S. government&#8217;s top-notch credit rating, which reinforced BlackRock&#8217;s long-standing concerns about persistent U.S. budget deficits, particularly as rising interest rates escalate debt servicing costs.
The note also highlights how the U.S. debt sustainability relies on large and steady funding by foreign investors.
&#8220;The downgrade reinforces the U.S. fiscal sustainability challenge that we&#8217;ve long flagged, especially persistent U.S. budget deficits at a time when higher interest rates are boosting debt servicing costs. If these dynamics dent the confidence of foreign bond holders, rising term premium could push up bond yields and debt servicing costs even more,&#8221; explained BlacRock in its note.
Consequently, BlackRock&#8217;s strategic starting point now incorporates an expectation of rising term premiums for U.S. Treasuries and persistent inflation.
&#8220;That's why our starting point also includes our expectation of rising term premium for U.S. Treasuries and persistent inflation pressure. We go overweight inflation-linked bonds and neutral global investment grade credit given wider spreads,&#8221; the note stated.
These securities are designed to protect investors from inflation by adjusting their principal value based on changes in the Consumer Price Index (CPI), ensuring that the real value of the investment is preserved.
See Also: <a href="https://www.benzinga.com/general/market-summary/25/05/45512063/ray-dalio-warns-against-decreasing-value-of-us-dollar-amid-mounting-government-debt-risks-are-greater-than-the-rating-agencies-are-conveying">Ray Dalio Warns Against Decreasing Value Of US Dollar Amid Mounting Government Debt: &#8216;Risks Are Greater Than The Rating Agencies Are Conveying&#8217;</a>
Why It Matters: For investors seeking exposure to this strategy, a few of the inflation-linked bond ETFs available include:
<figure class="wp-block-table is-style-stripes"> 
<table class="has-fixed-layout">
<tbody>
<tr>
<td>Inflation-Linked Bond ETFs</td>
<td>YTD Performance</td>
<td>One Year Performance</td>
</tr>
<tr>
<td>Vanguard Short-Term Inflation-Protected Securities ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/VTIP#NASDAQ">VTIP</a>)</td>
<td>3.03%</td>
<td>3.68%</td>
</tr>
<tr>
<td>iShares TIPS Bond ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/TIP#NYSE">TIP</a>)</td>
<td>2.04%</td>
<td>2.21%</td>
</tr>
<tr>
<td>Schwab U.S. TIPS ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SCHP#NYSE">SCHP</a>)</td>
<td>2.44%</td>
<td>2.05%</td>
</tr>
<tr>
<td>iShares 0-5 Year TIPS Bond ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/STIP#NYSE">STIP</a>)</td>
<td>1.79%</td>
<td>3.15%</td>
</tr>
<tr>
<td>FlexShares iBoxx 3-Year Target Duration TIPS Index Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/TDTT#NYSE">TDTT</a>)</td>
<td>1.99%</td>
<td>2.29%</td>
</tr>
<tr>
<td>SPDR Bloomberg 1-10 Year TIPS ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/TIPX#NYSE">TIPX</a>)</td>
<td>2.49%</td>
<td>2.87%</td>
</tr>
<tr>
<td>SPDR Portfolio TIPS ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPIP#NYSE">SPIP</a>)</td>
<td>1.85%</td>
<td>1.22%</td>
</tr>
<tr>
<td>FlexShares iBoxx 5-Year Target Duration TIPS Index Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/TDTF#NYSE">TDTF</a>)</td>
<td>2.41%</td>
<td>2.10%</td>
</tr>
<tr>
<td>PIMCO 15+ Year US TIPS Index ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/LTPZ#NYSE">LTPZ</a>)</td>
<td>-0.90%</td>
<td>-4.69%</td>
</tr>
<tr>
<td>PIMCO 1-5 Year US TIPS Index ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/STPZ#NYSE">STPZ</a>)</td>
<td>2.23%</td>
<td>3.88%</td>
</tr>
</tbody>
</table>
</figure>
&#8220;Economic transformation makes long-term portfolio construction more challenging,&#8221; BlackRock concluded, emphasizing its new approach of utilizing a starting point scenario for strategic views while formally tracking other potential outcomes to ensure portfolio agility.
While U.S. assets remain central to their portfolios, the move into inflation-linked bonds underscores a proactive stance against emerging fiscal and inflationary headwinds.
Price Action: The SPDR S&amp;P 500 ETF Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPY#NYSE">SPY</a>) and Invesco QQQ Trust ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/QQQ#NASDAQ">QQQ</a>), which track the S&amp;P 500 index and Nasdaq 100 index, respectively, rose on Monday. The SPY was up 0.11% to $594.85, while the QQQ advanced 0.096% to $522.01, according to <a href="https://pro.benzinga.com/dashboard">Benzinga Pro</a> data.
On Tuesday, the futures of the S&amp;P 500, Dow Jones, and Nasdaq 100 indices were trading slightly lower.
Read Next:
<ul class="wp-block-list">
<li><a href="https://www.benzinga.com/25/05/45510990/federal-reserve-should-do-nothing-at-all-about-the-rising-yields-says-craig-shapiro-let-the-bond-vigilantes-eat" target="_blank" rel="noreferrer noopener">Federal Reserve Should Do ‘Nothing At All' About The Rising Yields, Says Craig Shapiro: ‘Let The Bond Vigilantes Eat'</a></li>
</ul>
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo courtesy: Tada Images / Shutterstock.com

BlackRock Bets On Inflation, Goes 'Overweight Inflation-Linked Bonds' Amid US 'Fiscal Sustainability Challenge:' Here's A List Of ETFs Investors Can Consider

When inflation moves higher, fixed income investors often turn to Treasury Inflation-Protected Securities, a corner of the bond market easily accessible via exchange traded funds.
TIPS, which are viewed as a low-risk investment, are indexed to inflation. The par value of TIPS rises with increases in the Consumer Price Index. Interest rates on TIPS are fixed and yields on these bonds and the related ETFs are usually low relative to other fixed income assets.
Recent data from the Commerce Department indicates U.S. consumer prices are inching higher, meaning it could be time for investors to consider ETFs such as the PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund (NYSE: <a class="ticker" href="/stock/stpz#NYSE">STPZ</a>). STPZ, which is over eight years old, follows the BofA Merrill Lynch 1-5 Year US Inflation-Linked Treasury Index.
<h3>
	Low Duration</h3>
STPZ has a duration of just over three years and the effective maturity of the ETF&#39;s 12 holdings is just 2.94 years.
&ldquo;The short maturity-focused mandate gives the portfolio a duration of 3.1 years (as of November 2017), which mitigates interest rate risk and provides a strong hedge against immediate inflation,&rdquo; said Morningstar <a href="http:// http://beta.morningstar.com/articles/841712/fight-inflation-with-this-low-cost-etf.html">in a recent note</a>. &ldquo;Gains and losses from price volatility are muted thanks to the strategy&#39;s short duration. As a result, this fund more closely tracks the realized inflation fluctuations over the short run than its longer duration counterparts do.&rdquo;
The $1-billion STPZ has a 30-day SEC yield of 1.64 percent. The Federal Reserve&#39;s gauge of inflation rose 0.2 percent in November and <a href="https://www.bloomberg.com/news/articles/2017-12-22/u-s-consumer-spending-tops-forecasts-as-inflation-accelerates">1.8 percent year-over-year</a>. The Fed is targeting inflation of 2 percent, a mark that has been missed for several years.
<h3>
	How STPZ Benefits</h3>
Obviously, rising inflation benefits a fund such as STPZ, but investors need to understand how those benefits are realized.
&ldquo;Break-even inflation is the rate that would equate the real return from regular U.S. Treasuries and TIPS with the same maturity,&rdquo; according to Morningstar. At the end of November 2017, the break-even inflation rate was 1.8 percent, which was 0.2 percent lower than the 10-year rolling break-even rate average of 2 percent. If actual inflation exceeds 1.8 percent, it would reward TIPS investors, but if it is lower than this threshold, U.S. Treasury bonds would come out ahead.&rdquo;
Other PIMCO inflation ETFs include the PIMCO Broad U.S. TIPS Index Exchange-Traded Fund (NYSE: <a class="ticker" href="/stock/tipz#NYSE">TIPZ</a>) and the PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (NYSE: <a class="ticker" href="/stock/ltpz#NYSE">LTPZ</a>).
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Fight Inflation With This ETF

Bond giant PIMCO said in a statement today that it will introduce the Global Advantage Inflation-Linked Bond Strategy Fund on May 1. The new actively managed ETF will trade on the New York Stock Exchange under the ticker "ILB."

The Global Advantage Inflation-Linked Bond Strategy Fund is designed to offer investors the potential for long-term returns above inflation by actively managing global inflation-linked bonds and currencies under the ETF wrapper, according to a statement issued by PIMCO. The new fund is managed by Mihir Worah, Managing Director and Head of PIMCO's Real Return portfolio management team.

ILB's primary benchmark index is the Barclays Capital Universal Government Inflation-Linked Bond Index and its secondary benchmark index is the PIMCO Global Advantage Inflation-Linked Bond Index. 

PIMCO manages more than $100 billion in dedicated inflation hedging strategies, the California-based firm said in the statement.

PIMCO currently lists 18 ETFs, including TIPS products such as the PIMCO 1-5 Year US TIPS Index ETF (NYSE: <a class="ticker" href="/stock/stpz#NYSE">STPZ</a>) and the PIMCO Broad U.S. TIPS Index ETF (NYSE: <a class="ticker" href="/stock/tipz#NYSE">TIPZ</a>). In late February, the firm introduced the PIMCO Total Return ETF (NYSE: <a class="ticker" href="/stock/bond#NYSE">BOND</a>), the ETF equivalent of the Total Return Fund managed by Bill Gross. In less than two months of trading, BOND has accumulated more than $508 million in AUM. 

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The Consumer Price Index data for January will be released Friday morning at 8:30 a.m. ET. The statistic is a measure of inflation based on changes in prices of fixed group of goods and services purchased by consumers.

The one-month <a href="http://www.benzinga.com/markets/bonds/12/02/2343663/yen-falls-as-bank-of-japan-announces-inflation-goal-and-new-stimulus">seasonally-adjusted CPI</a> was unchanged in November and December. A consensus of analysts predicts a 0.3 percent increase in the CPI in January, the largest percent increase since September 2011.

The CPI has been between 1 percent and 4.5 percent since December 2009 according to a Feb. 16 Bank of America report. The 12-month percent change in CPI has decreased steadily since September 2011. In November, the 12-month percent change in CPI was 3.4 percent and it was 3 percent in December.

Inflation drives investors to commodities, with gold at the forefront. Gold has increased in price by nearly $200 an ounce since the start of the year. Gold has been tied to market volatility and uncertainty. The value decreased Feb. 3 with a positive jobs report, and could spike with a report of increased inflation as people hedge the U.S. dollar.

Companies which mine for gold may also be a good investment, as the commodity increases in value. Newmont Mining Corporation (NYSE: <a class="ticker" href="/stock/nem#NYSE">NEM</a>) reports 2011 earnings next week and they are estimated to show a 20 percent year-over-year improvement. Stock in the Greenwood Village, Colorado-based company has declined in value this year, from $62.08 to $59.60 at the end of the trading day Wednesday.

There has been concern that inflation will be fueled by low interest rates from the Federal Reserve Bank, which have been hovering near zero for the past three years. Chairman Ben Bernanke reiterated his plans to keep the interest rate low until 2014 to spur higher employment in a Senate Budget Committee hearing on Feb. 7.

“We still have a long way to go before the labor market can be said to be operating normally,” Bernanke said.

As long as inflation stays below a 2 percent annual target set by the Federal Reserve Bank and Bernanke Jan. 25, <a href="http://www.benzinga.com/news/12/01/2274471/negative-cpi-positive-job-numbers-is-the-economy-healing-or-not">the CPI information</a> will likely not be incentive for Bernanke to change tactics.

Treasury inflation-protected securities, which are designed to hedge against inflation by being tied to a cost of living index, pay a guaranteed rate of return. The PIMCO 105 year U.S. TIPS Index (NYSE: <a class="ticker" href="/stock/stpz#NYSE">STPZ</a>) has increased from $53.35 at the beginning of the year to $54.03 at the end of the trading day Wednesday.

In December indexes for gasoline, household energy and vehicles declined. Indexes for food, shelter, recreation, medical care and tobacco increased, indicating other opportunities for investment. Core CPI, which excludes food and energy, increased 0.1 percent in December and 0.2 percent in November.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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<a href="http://investwithanedge.com/stip-a-short-term-tips-etf-from-ishares">Courtesy of Invest With An Edge</a>
The iShares Barclays 0-5 Year TIPS Bond Fund (STIP) from Blackrock began trading last Friday (12/03/10).  The new ETF targets the short end of the TIPS curve by seeking to track the Barclays Capital U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Years Index (Series-L).
The <a onclick="pageTracker._trackPageview('/outbound/article/us.ishares.com');" href="http://us.ishares.com/content/stream.jsp?url=/content/en_us/repository/resource/fact_sheet/stip.pdf&amp;mimeType=application/pdf" target="_blank">STIP fact sheet</a> (pdf) indicates 13 holdings and an effective duration of 1.38 years.  I expect the distribution yield to come in below 1% after subtracting the 0.20% expense ratio.  Additional information is in the <a onclick="pageTracker._trackPageview('/outbound/article/us.ishares.com');" href="http://us.ishares.com/product_info/fund/overview/STIP.htm" target="_blank">overview</a>, <a onclick="pageTracker._trackPageview('/outbound/article/us.ishares.com');" href="http://us.ishares.com/newsroom/pr_2010_12_03.htm" target="_blank">press release</a>, and <a onclick="pageTracker._trackPageview('/outbound/article/us.ishares.com');" href="http://us.ishares.com/content/stream.jsp?url=/content/en_us/repository/resource/prospectus/is_p_stip.pdf&amp;mimeType=application/pdf" target="_blank">prospectus</a> (pdf).
STIP faces competition from PIMCO 1-5 Year TIPS Index Fund (<a class="ticker" href="/stock/stpz#">STPZ</a>).  <a href="http://investwithanedge.com/pimco-launches-tips-etf-stpz" target="_blank">STPZ launched in August of 2009</a>, has amassed $645 million in assets, and has the same 0.20% expense ratio.  The new iShares STIP claims to be the only ETF offering exposure to the very shortest end of the curve (zero to one year) as its 0-5 year range is broader than STPZ's 1-5 year range.
Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.
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New Short END TIPS from iShares (STIP)

The iShares Barclays 0-5 Year TIPS Bond Fund (STIP) from Blackrock began trading last Friday (12/03/10).  The new ETF targets the short end of the TIPS curve by seeking to track the Barclays Capital U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Years Index (Series-L).
The <a href="http://us.ishares.com/content/stream.jsp?url=/content/en_us/repository/resource/fact_sheet/stip.pdf&amp;mimeType=application/pdf" target="_blank">STIP fact sheet</a> (pdf) indicates 13 holdings and an effective duration of 1.38 years.  I expect the distribution yield to come in below 1% after subtracting the 0.20% expense ratio.  Additional information is in the <a href="http://us.ishares.com/product_info/fund/overview/STIP.htm" target="_blank">overview</a>, <a href="http://us.ishares.com/newsroom/pr_2010_12_03.htm" target="_blank">press release</a>, and <a href="http://us.ishares.com/content/stream.jsp?url=/content/en_us/repository/resource/prospectus/is_p_stip.pdf&amp;mimeType=application/pdf" target="_blank">prospectus</a> (pdf).
STIP faces competition from PIMCO 1-5 Year TIPS Index Fund (<a class="ticker" href="/stock/stpz#">STPZ</a>).  <a href="http://investwithanedge.com/pimco-launches-tips-etf-stpz" target="_blank">STPZ launched in August of 2009</a>, has amassed $645 million in assets, and has the same 0.20% expense ratio.  The new iShares STIP claims to be the only ETF offering exposure to the very shortest end of the curve (zero to one year) as its 0-5 year range is broader than STPZ's 1-5 year range.
Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.
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STIP: A Short-Term TIPS ETF From iShares

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