iShares’ newly launched short-term TIPS ETF sees large inflow

Aug 17th, 2017 | By | Category: Fixed Income

The iShares $ TIPS 0-5 UCITS ETF has recorded a significant inflow of around $177 million. The newly launched fund, introduced on the London Stock Exchange in April of this year, saw its total assets under management jump on Monday 7th August 2017 to $185m from approximately $7.5m in seed capital.

Newly-launched iShares short-term TIPS ETF sees large inflow

The newly launch iShares $ TIPS 0-5 UCITS ETF recorded a significant inflow of circa $177 million on 7 August 2017.

The ETF tracks the ICE US Treasury Inflation Linked Bond 0-5 Index which provides exposure to US Treasury inflation-protected bonds with maturities between zero and five years.

TIPS securities differ from regular Treasury securities in that the principal amount of a TIPS issue is adjusted over time to reflect changes in the underlying Consumer Price Index.

TIPS pay interest twice a year at a fixed rate. Although the coupon rate for the TIPS issue is fixed throughout its life, it is applied to a principal amount which varies accordingly over time in response to the rate of inflation or deflation. As such, increases in inflation correspond to increased principal and coupon payments. Investors should note however that decreases in inflation would lower the dollar value of coupon and principal payments.

Through this feature of the underlying TIPS securities, the ETF offers a low-cost means for investors to protect their portfolios against potential increases in US inflation. By investing in short-maturity securities, the fund partially mitigates the risk of future interest rate increases negatively impacting portfolio value (TP05 has an effective duration of 2.8 years).

The ETF is physically replicating and has a total expense ratio (TER) of 0.10%. It has three share classes: GBP (TP05), USD (TIP5) and, on Deutsche Börse’s Xetra, EUR (SXRH).

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