Vanguard unveils short-term TIPS ETF (VTIP)

Oct 17th, 2012 | By | Category: Fixed Income

Vanguard has announced the launch of the Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP), an exchange-traded fund (ETF) offering exposure to the short end of the Treasury Inflation-Protected Securities (TIPS) curve.

Vanguard unveils short-term TIPS ETF (VTIP)

The Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP) offers exposure to the short end of the Treasury Inflation-Protected Securities (TIPS) curve.

The fund aims to achieve real (inflation-adjusted) returns, capital preservation, and, given its focus on short-duration TIPS, can be expected to have lower volatility and less real interest-rate risk than conventional TIPS funds.

The fund seeks to track the performance of the Barclays US Treasury Inflation-Protected Securities 0-5 Year Index, a market-weighted index that measures the performance of inflation-protected public obligations of the US Treasury that have a remaining maturity of less than five years.

The benchmark index has an average duration of 2.71 years and an average maturity of 2.76 years.

“Vanguard believes TIPS can serve a valuable role in a well-balanced portfolio as an inflation hedge and diversifier. The Short-Term Inflation Protected Securities Index Fund was developed for investors seeking inflation protection with the potential for less volatility than other inflation hedges, including stocks, longer-term TIPS, gold, and REITs,” said Vanguard Chief Investment Officer Gus Sauter.

Vanguard’s Fixed Income Group, which oversees nearly $640 billion in assets, will serve as investment advisor to the fund. The co-managers of the fund are Joshua Barrickman and Gemma Wright-Casparius, who together have a combined 40 years of fixed income management experience. Mr. Barrickman has been with Vanguard since 1998 and manages several Vanguard bond index funds and ETFs. Ms. Wright-Casparius joined Vanguard in 2011 and manages the Vanguard Inflation-Protected Securities Fund.

The fund has been listed on Nasdaq and will have an expected annual expense ratio of 0.10%. This compares to average expense ratios of 0.82% and 0.20% for the TIPS fund and ETF categories, respectively.

With its low fee, VTIP will likely provide stiff competition to BlackRock’s iShares Barclays 0-5 Year TIPS Bond ETF (STIP), which tracks the same Barclays index but costs double, 0.20%, and to Pimco’s short-term TIPS offering, the Pimco 1-5 Year U.S. TIPS Index Fund (STPZ), which tracks the BofA Merrill Lynch 1-5 Year US Inflation-Linked Treasury Index and also costs 0.20%.

That said, the new Vanguard fund won’t be the cheapest in the broader TIPS category. The Schwab US TIPS ETF (SCHP), which tracks the Barclays US Treasury Inflation Protected Securities Index, costs just 0.07%.

For UK and European investors looking for exposure to US TIPS, the London-listed iShares Barclays Capital $ TIPS ETF (ITPS) tracks the Barclays Capital US Government Inflation-Linked Bond Index (TIPS) Index.

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