Exchange Traded Funds (ETFs)

This Early-Starter Bond Fund Guards against Inflation

This week’s exchange-traded fund (ETF), the iShares TIPs Bond Exchange ETF (TIP), invests in U.S. Treasury Inflation Protected Securities (TIPS).

The TIPS are indexed to inflation to protect investors. TIPS are considered to be extremely low-risk because they are backed by the U.S., government and their value rises with inflation.

The fund typically invests 95% of its assets in U.S. government bonds. It also may invest up to 5% of its assets in repurchase agreements (Repos) collateralized by U.S. government obligations or otherwise hold the 5% in cash and cash equivalents.

Following its December 2003 inception, TIP had a roughly 3.5-year head start to build its asset base before ETFs started to really attract the attention of investors. TIP’s first-mover advantage has allowed it to accumulate $22.69 billion in total assets, as well as enjoy a massive average daily trading volume of $148.46 million. In addition to liquidity, TIP’s portfolio is broad and well-diversified.

From the chart below, you can see that the fund was hurt by the Trump rally in December but has rebounded since then. The fund’s year-to-date return is 0.90% versus the S&P 500’s 7.11%. TIP’s total return since inception is 4.17%. TIP has a distribution yield of 3.03% and an expense ratio of 0.20%.

TIP’s top five holdings in the portfolio are U.S. Treasury Notes with various maturity dates: 7.94% Notes with a maturity date of 7/15/2024; 6.34% Notes with a maturity date of 4/15/2019; 4.94% Notes with a maturity date of 4/15/2021; 4.51% Notes with a maturity date of 1/15/2024; and 4.47% Notes with a maturity date of 4/15/2025.

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If you are seeking exposure to U.S. treasury bonds while steering clear of inflation risks, I encourage you to look into iShares TIPs Bond Exchange ETF (TIP) as a potential investment.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.