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UBS Asset Management has reduced the total expense ratio (TER) on the UBS ETF Barclays TIPS 1-10 UCITS ETF (LON: UBTS) with the new pricing effective from 1 April 2017. The fund offers investors inflation risk mitigation by tracking US Treasury Inflation-Protected Securities (TIPS).
The TER for the unhedged share class, which trades in GBP, has fallen from 0.20% to 0.15% while the currency-hedged share classes (relative to British pounds, Swiss francs or euros) has been reduced from 0.25% to 0.20%.
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.
UBS has accredited the fee reduction to the greater economies of scale achieved through the ETF’s growing assets under management. Launched in September 2016, the fund has attracted inflows of $470 million year to date and total assets of over $600m. (Data as of 20 April 2017)
According to UBS, strong interest in the ETF has been driven by investors seeking to protect themselves from increased concerns of rising inflation in the US following Trump’s election and expectations on policy change.
Clemens Reuter, global head of investment specialists passive & ETFs, commented: “After an extended period of low interest rates there is growing evidence in markets of inflationary pressures starting to build, particularly in the US. With this innovative fixed income product, our clients are able to protect long-term purchasing power and gain access to an asset class that compounds the real rate of return.”
The ETF provides transparent and structured exposure to US TIPS and may suit investors also concerned by the impact of future interest rate increases on the value of their portfolio as the fund tends to target securities with shorter durations.
“UBS Asset Management continues to expand its fixed income ETF range by providing solutions which meet the needs of clients,” added Reuter. “Fixed income represents a growth area for the passives and ETFs market.”
The ETF’s share class tickers, their trading currencies, and their new TERs are listed below:
UBS Barclays TIPS 1-10 UCITS ETF (LON: UBTS) – GBP – TER: 0.15%
UBS Barclays TIPS 1-10 hedged GBP UCITS ETF (LON: UBTP) – GBP – TER: 0.20%
UBS Barclays TIPS 1-10 hedged CHF UCITS ETF (SIX: TIP1S) – CHF – TER: 0.20%
UBS Barclays TIPS 1-10 hedged EUR UCITS ETF (SIX: TIP1E) – EUR – TER: 0.20%