A TIP for the Inflation-Wary ETF Trader
In a universe of ETFs that covers everything from timber — Claymore/Clear Global Timber(CUT Quote) — to Taiwan — iShares MSCI Taiwan Index(EWT Quote) — investors are seeking protection as well as opportunity.
The iShares Barclays TIPS Bond (TIP Quote) Fund is one of the more conservative portfolio choices that equity-wary investors have added to their ETF picks as the question of inflation looms larger on the horizon. TIP tracks an index of U.S. Treasury inflation-protected securities (TIPS) that have at least one year remaining to maturity, an investment-grade rating and more than a $250 million face value.
Inflation, or at least the fear of inflation, could be the result of the hefty stimulus package proposed by the current administration. A recent Bloomberg News survey of 57 economists suggested that U.S. consumer prices may rise 1.6 percent in 2010.
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While TIPS pay a lower coupon than regular Treasuries, the advantages in an inflation-fearful economy may be worth the wait. According to the Merrill Lynch bond indices, regular Treasuries have lost 3.9 percent including interest payments this year while TIPS have returned 3.6 percent.
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