Terrified the U.S. economy is going into a death spiral of low economic growth and inflation? Normally Treasury Inflation-Protected Securities, or TIPS, would be the right choice for you.
Slow or negative economic growth can mean lower interest rates (as we've seen lately) and rising defaults on corporate debt. TIPS are default risk-free, and the inflation adjusting feature of TIPS means investors don't have to worry about rising inflation.
But what if you also think the U.S. Dollar is about as sound as the Mexican Peso used to be (in other words, not very)? Then the mutual fund industry has a new exchange traded fund (ETF) for you:
SPDR DB International Government Inflation-Protected Bond fund (WIP) [is a] new exchange traded fund launched Wednesday on the American Stock Exchange. It's the first international TIPS ETF available in the U.S.
State Street launched the fund to meet rising demand as investors try to hedge against inflation and dollar exposure, says James Ross, senior managing director at State Street.
The fund tracks the performance of the Deutsche Bank Global Government ex-U.S. Inflation-Linked Bond Capped Index. The index includes 120 inflation-indexed bonds from 18 developed and emerging countries outside the U.S. Investors will also have exposure to 15 currencies. It has a 21% return over the last year...."
One thing to watch out for are high fees:
...This ETF will cost 0.50%. That's almost double the cost of the two domestic inflation-protected bond ETFs available: iShares Treasury Inflation-Protected Securities (TIP) and the SPDR Lehman Barclays Treasury Inflation-Protected Securities (IPE). But the international coverage is the SPDR fund's draw."
Bottom line, if the sluggish U.S. economy remains so, this new ETF will do well. If however the future holds falling inflation rates, rising interest rates globally, and a rising U.S. dollar, this new ETF could perform so poorly you'll wish you had left your money in a boring ole U.S. dollar denominated CD at your local bank. We expect the latter scenario over the former. Investor demand for TIPS has recently reached ridiculous proportions - we've even seen negative yields on some TIPS recently as investors clamor for an inflation hedge. As most investors usually do the exact opposite of what they should be doing, this probably means rough times for TIPS investors ahead.
Foreign TIPS ETF
Terrified the U.S. economy is going into a death spiral of low economic growth and inflation? Normally Treasury Inflation-Protected Securities, or TIPS, would be the right choice for you.
Slow or negative economic growth can mean lower interest rates (as we've seen lately) and rising defaults on corporate debt. TIPS are default risk-free, and the inflation adjusting feature of TIPS means investors don't have to worry about rising inflation.
But what if you also think the U.S. Dollar is about as sound as the Mexican Peso used to be (in other words, not very)? Then the mutual fund industry has a new exchange traded fund (ETF) for you:
SPDR DB International Government Inflation-Protected Bond fund (WIP) [is a] new exchange traded fund launched Wednesday on the American Stock Exchange. It's the first international TIPS ETF available in the U.S.
State Street launched the fund to meet rising demand as investors try to hedge against inflation and dollar exposure, says James Ross, senior managing director at State Street.
The fund tracks the performance of the Deutsche Bank Global Government ex-U.S. Inflation-Linked Bond Capped Index. The index includes 120 inflation-indexed bonds from 18 developed and emerging countries outside the U.S. Investors will also have exposure to 15 currencies. It has a 21% return over the last year...."
One thing to watch out for are high fees:
...This ETF will cost 0.50%. That's almost double the cost of the two domestic inflation-protected bond ETFs available: iShares Treasury Inflation-Protected Securities (TIP) and the SPDR Lehman Barclays Treasury Inflation-Protected Securities (IPE). But the international coverage is the SPDR fund's draw."
Bottom line, if the sluggish U.S. economy remains so, this new ETF will do well. If however the future holds falling inflation rates, rising interest rates globally, and a rising U.S. dollar, this new ETF could perform so poorly you'll wish you had left your money in a boring ole U.S. dollar denominated CD at your local bank. We expect the latter scenario over the former. Investor demand for TIPS has recently reached ridiculous proportions - we've even seen negative yields on some TIPS recently as investors clamor for an inflation hedge. As most investors usually do the exact opposite of what they should be doing, this probably means rough times for TIPS investors ahead.
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