There were substantial TIPS ETF inflows from May 2020 through December 2021.
Like many other bond funds, moderate and high duration TIPS ETFs experienced large declines in 2022.
For example, 2022 returns for TIP, SCHP, and LTPZ were -12.24%, -12.02%, and -31.68% respectively.
It's not surprising that investors were disappointed with TIPS performance last year when inflation was high.
"Nearly $17 billion has exited from Treasury-inflation securities ETFs over 10 consecutive months of outflows, an unprecedented streak in data going back to 2016, Bloomberg Intelligence data show.""
That rush to the exits follows a bruising stretch of underperformance for the asset designed to protect against inflation. While TIPS weather against price erosion, real yields — which strip out the impact of inflation — have soared over the past year, shredding returns even as price pressures remain stubbornly high. That’s soured the appetite of investors who piled into TIP and similar ETFs to curb inflation.""The distaste for TIPS-tracking ETFs contrasts with reignited demand for the securities in the primary market. Investors snatched up about 96% of the $19 billion in Treasury Inflation Protected Securities auctioned last week, leaving less than 4% to firms authorized as primary dealers."Link(Bloomberg subscription may be required)
Comments
If you're already in one, aren't you adding more new cheap shares every month?
Breakeven rates can be used to compare TIPS to nominal Treasuries of the same term.
There was a 5-year TIPS auction on 06/22/2023.
From David Enna on Tipswatch.com:
"At the auction’s close at 1 p.m. EDT, a 5-year Treasury note was trading with a nominal yield of 4.03%,
creating an inflation breakeven rate of 2.2% for this TIPS.
That is the lowest auctioned breakeven rate for this term since an auction in December 2020.
Although 2.2% is a relatively 'highish' breakeven rate by historical standards,
it seems quite reasonable at a time when U.S. inflation is running at 4.0%.
In indicates that this TIPS is cheaply priced versus the nominal Treasury of the same term."
With TIPS funds, duration causes complications.
I should have done this in my prior post.
Bought a sizable amount (for me) of the 5-year TIPS at the latest auction.
Plan to hold these TIPS (1.832% real yield) to maturity for inflation protection.
https://treasurydirect.gov/instit/annceresult/press/preanre/2023/A_20231012_5.pdf
Edit/Add. 5-yr TIPS, 10/19/23. 2.44% (real) YTM (2 3/8% coupon). So, 2.44% + inflation.
treasurydirect.gov/instit/annceresult/press/preanre/2023/R_20231019_3.pdf
An individual TIPS bond is one thing. Not too hard to fathom. Makes sense for someone to buy and hold one having a set maturity (only if meets their needs). But throw those vehicles into a fund with constant investor inflows and outflows and varied maturities … sounds like a very “unhinged” investment with a highly unpredictable outcome. Suspect, however, that once TIPS funds recover and begin posting some attractive 7-10% annual returns (prediction) the unwary will once more pile in thinking again they’ve landed on Easy Street.
A better idea may be the new fixed maturity TIPS etfs with bonds that all mature the same year. We will see
https://www.etf.com/sections/features/case-blackrocks-new-defined-maturity-tips-etfs
https://tipswatch.com/2023/10/15/this-weeks-5-year-tips-auction-offers-a-solid-investment-opportunity/
for those seeking protection from "unexpected" inflation.
I would be a buyer if I hadn't purchased 5-yr TIPS earlier this year.