Update: iShares $ TIPS UCITS ETF

In US-Bond-Portfolios könnte dieser ETF Schutz vor der Wirkung steigender Zinsen bieten. Gänzlich lösen können sich Inflationsschutz-Produkte indes nicht vom zugrundeliegenden Markt.

Jose Garcia-Zarate 13.01.2017

Rolle im Portfolio

IShares $ TIPS offers investors exposure to the performance of the market of US inflation-linked government bonds, commonly known as Treasury Inflation-Protected Securities. This exchange-traded fund tracks an index that covers the whole maturity spectrum of the TIPS market. The performance of TIPS is directly correlated to the level of inflation, as measured by the US Consumer Price Index (CPI). TIPS have a deflation floor, meaning that repayment of the principal at par value is always guaranteed.

This ETF would work best as a complement to core holdings in US-centric investment portfolios; offering protection against capital depreciation caused by inflationary pressures. From the point of view of European investors, gaining exposure to the TIPS market would probably be more of a tactical bet.

This is a US-dollar-denominated financial product whose performance will be affected by foreign-exchange fluctuations. This ETF does not distribute dividends.

Demand for TIPS is largely led by institutional investors; particularly pension funds and insurance companies with a need to hedge against inflation in fairly long-term investment horizons. As a result, the ETF tracks an index with high duration (9-10 years). This would weigh on performance at times of rising interest rates.

Ideally, investors should consider setting up positions of inflation-linked products when inflation expectations are low, so as to minimise purchasing costs. Break-even inflation rates, calculated as the difference between the yield of conventional and inflation-linked government bonds, provide a fair measure of market inflation expectations across time horizons.

Fundamentale Analyse

The US economy's domestic performance remains on positive footing. Private consumption and business investment have improved, and the housing market has strengthened. Labour market conditions have also shown consistent positive signs.

Inflationary pressures, as measured by the broad CPI, have remained largely contained in this improved economic landscape. The fall in energy prices pushed the CPI strongly down from mid-2014 onward, even dipping in and out of negative terrain in the first half of 2015. It has picked up since, although as of this review, the CPI remains well below the US Fed's price stability target of 2.0%. However, the core CPI measure, which excludes energy prices and is the Fed's most-watched measure of inflation, has been running above 2.0% since late 2015.

The Fed hiked interest rates in December 2015, and although it has spent the best part of 2016 scaling back expectations, it remains on course to deliver further monetary tightening. However, in all likelihood, further rate hikes will be administered very gradually, and the peak of the new cycle should remain below precrisis levels.

Overall, compared with other developed economies, the inflationary outlook in the United States seems subject to more upside risks. In particular, increasing tightness in labour market conditions could eventually feed into wage-related price pressures.

Indexkonstruktion

The Barclays US Government Inflation-Linked Bond Index measures the performance of the US TIPS market. The index includes all capital-indexed US government bonds with either a fixed or zero notional coupon, a remaining maturity of at least one year, and a minimum outstanding of USD 500 million. In practice, the index basket is generally made up of all existing TIPS, except those with remaining maturity less than one year. The index is calculated daily using midmarket real prices provided by Barclays market makers at the local market close. The index is rebalanced on the last calendar day of each month. Bonds are weighted by their market-capitalisation value. Index holdings are valued at face value rather than on an inflation-adjusted basis. Coupon income received intramonth is invested at one-month USD Libor minus 15 basis points and reinvested into the index at rebalancing.

Fondskonstruktion

IShares uses physical replication to track the performance of the Barclays US Government Inflation-Linked Bond Index. The limited size of the US TIPS market allows iShares to use full replication to construct the fund. However, there may be slight differences in the statistical weighting of individual constituents between fund and index. As such, iShares prefers to describe the replication methodology as sampling. The ETF faithfully replicates the index's statistical split between short- to medium-dated and long-dated maturities; which in turn is reflective of the inflation-linked bond issuance strategy pursued by the US Treasury. The ETF does not distribute dividends. IShares engages in securities lending with the holdings of the ETF. BlackRock acts as investment manager on behalf of iShares. The ETF can lend out up to 100% of net asset value. The average on loan for this ETF in the 12 months to the end of September 2016 was 44.6%, for an annualised return of 9 basis points. Lending operations are backed by taking UCITS-approved collateral greater than the loan value and by revaluing loans and collateral on a daily basis. The collateral is held in a ringfenced account by a third-party custodian. The degree of overcollateralisation is a function of the assets provided as collateral but typically ranges from 102.5% to 112%. Lending revenue is split 62.5/37.5 between the ETF and BlackRock, respectively.

Gebühren

The annual ongoing charge for this ETF is 0.25%. Additional costs potentially borne by investors and not included in the ongoing charge include bid-offer spreads and brokerage fees when buy/sell orders are placed for ETF shares. There are also rebalancing costs whenever the index changes composition. Historical data shows that the ETF has routinely delivered net returns above its ongoing charge. Over short and long periods, annualised tracking difference averages 16 basis points. The fairly substantial revenues obtained via securities lending are the key contributing factor.

Alternativen

IShares was quick off the mark providing European investors with ETFs tracking the US TIPS market, managing to capture the bulk of market share in the process. As of this review, iShares $ TIPS ETF remains the undisputed market leader, as measured in assets under management.

Of the few available alternatives, one that has managed to build a decent level of liquidity is the SPDR Barclays US TIPS ETF. Launched in December 2015, the SPDR fund is physically replicated, tracks the same index as iShares and charges a lower 0.17%.

A more recent addition to the marketplace is Lyxor US TIPS, which made its debut in July 2016. Also physical, and also tracking the same index; it comes with the lowest ongoing charge at 0.09%.

Über den Autor

Jose Garcia-Zarate  is an ETF analyst with Morningstar UK.