3 Best-Performing TIPS ETFs For Inflation Protection

Investing in Treasury Inflation-Protected Securities

Treasury Inflation-Protected Securities, or TIPS, are bonds that are indexed to inflation, which means that the principal value adjusts with movements in inflation. Thus, in an inflationary environment, the principal value of TIPS rises alongside prices.

TIPS are indexed to the level of the Consumer Price Index, or CPI. Some investors buy TIPS securities when they believe the rate of inflation will increase beyond market expectation and some buy TIPS as inflation protection or for diversification benefits. As is the case with other types of bonds, investors may invest in TIPS through the purchase of individual securities, or they may also choose to invest in TIPS mutual funds or TIPS ETFs.

TIPS Yield Over Time

Over time, TIPS yields are generally lower than conventional bond yields, such as that of the 10-year Treasury bond. This is because TIPS investors receive inflation-adjusted yields, thereby removing inflation risk from the risk-reward equation. When an investment is subject to less risk, it is generally subject to less expected return.

Evaluating TIPS ETFs

Investors can research and analyze TIPS ETFs with an ETF screener. To use the Seeking Alpha ETF screener to find TIPS ETFs, investors can select the “Taxable Bond” asset class, then select the “Inflation-Protected Bond” sub-class. From there, investors can review fund objective, performance, holdings, yield, and risk.

The criteria we used for choosing the best TIPS ETFs are:

• Performance: 1-year return through March 31, 2022 is the primary selection criteria for evaluating the performance of our featured TIPS ETFs. However, investors are wise to do further review of longer periods, such as 3-, 5-, and 10-year returns, before choosing an ETF for their portfolio.
• Expenses: Low expenses, as measured by the fund’s expense ratio, can be an important measurement for ETFs. This is because, when ETFs track the same or similar index, the one with the lowest expense ratio will generally superior performance, especially over the long term.
• Objective: Only ETFs that primarily hold Treasury inflation-protected bonds were considered. The ETFs may be actively or passively managed. Alternative objectives and strategies, such as inverse ETFs and leveraged ETFs, were ignored for this list.
• Portfolio holdings: TIPS ETFs typically hold Treasury inflation-protected securities and commonly seek to passively track the performance of a TIPS index. Holdings generally consist of U.S. Treasury bonds that are indexed to inflation.
• Quant Ratings and Factor Grades: Seeking Alpha’s Quant Ratings and Factor Grades can be used for evaluating stocks or ETFs. In this article, we share what are called, “Factor Grades,” which provide letter grades for five “factors” – Momentum, Expenses, Dividends, Risk, and Asset Flows. To do this, Seeking Alpha compares the relevant metrics for the factor to the same metrics for the other ETFs in its asset class. The factor grades range from a high of A+ to a low of F.

3 Best-Performing TIPS ETFs (in % terms)

To make our list of best TIPS ETFs, we rank by the top performance for 1-year returns, through March 31, 2022. Investors should keep in mind that past performance is no guarantee of future results and that TIPS ETFs can see significant fluctuations in price like other equity-based ETFs.

Note: For consistency in performance comparison among these three TIPS ETFs, we use the Bloomberg U.S. Government Inflation-Linked Bond Index. as the TIPS benchmark and the Bloomberg U.S. Aggregate Bond Index as a reference for the broader bond market.

1. PIMCO 15+ Year U.S. TIPS ETF (LTPZ)

• As of date: March 31, 2022
• 1-year performance: 6.89%
• Expense Ratio: 0.20%, or $20 annually for every $10,000 invested
• SEC Yield: 7.75%
• Three-Month Average Daily Volume: 161K

PIMCO 15+ Year U.S. TIPS ETF is an exchange-traded fund that seeks to track the BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index. This index consists primarily of U.S. government bonds with durations averaging higher than 15 years.

PIMCO 15+ Year U.S. TIPS ETF Performance

The PIMCO 15+ Year U.S. TIPS ETF outperforms the broader TIPS index, as well as the aggregate bond index, for all time periods, through March 31, 2022. This outperformance is primarily attributed to the average longer maturities in the index, which generally

Here is where a $10,000 investment in LTPZ, 1 year, 3 years, 5 years, and 10 years ago, would be as of March 31, 2022:

• 1 year ago: $10,689
• 3 years ago: $13,375
• 5 years ago: $14,170
• 10 years ago: $15,694

PIMCO 15+ Year TIPS ETF Structure, Objective & Holdings

• Inception Date: 05/14/2018
• Sponsor: Pacific Investment Management Company, LLC
• Ticker: LTPZ
• Primary exchange: NYSE Arca
• Structure: Open-ended investment company
• Objective: Track the BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index.
• Holdings: U.S. government Treasury bonds, averaging a 20.98 duration.

LTPZ ETF Quant Rating Grades

2. SPDR Portfolio TIPS ETF (SPIP)

• As of date: March 31, 2022
• 1-year performance: 4.25%
• Expense Ratio: 0.12%, or $12 annually for every $10,000 invested
• SEC Yield: -0.11%
• Three-Month Average Daily Volume: 161K

SPDR Portfolio TIPS ETF is an exchange-traded fund that seeks to track the Bloomberg U.S. Government Inflation-Linked Bond Index, which consists of 54 U.S. Treasury inflation indexed bonds.

SPDR Portfolio TIPS ETF Performance

The SPDR Portfolio TIPS ETF performs closely to the TIPS index for all time periods, and beats the broader aggregate bond index, through March 31, 2022. This outperformance compared to conventional bonds is typical for TIPS ETFs, primarily due to gains for TIPS over the past few years, while most other bonds have had negative to below-average returns.

Here is where a $10,000 investment in SPIP, 1 year, 3 years, 5 years, and 10 years ago, would be as of March 31, 2022:

• 1 year ago: $10,425
• 3 years ago: $11,988
• 5 years ago: $12,408
• 10 years ago: $12,952

SPDR Portfolio TIPS ETF Structure, Objective & Holdings

• Inception Date: 05/25/2007
• Sponsor: SSGA Funds Management, Inc
• Ticker: SPIP
• Primary exchange: NYSE Arca
• Structure: Open-ended investment company
• Objective: Track the Bloomberg U.S. Government Inflation-Linked Bond Index.
• Holdings: 54 U.S. government Treasury bonds, averaging a 7.78 duration.

SPIP ETF Quant Rating Grades

3. iShares TIPS Bond ETF (TIP)

• As of date: March 31, 2022
• 1-year performance: 4.07%
• Expense Ratio: 0.19%, or $19 annually for every $10,000 invested
• SEC Yield: 8.32%
• Three-Month Average Daily Volume: 6.0M

iShares TIPS Bond ETF is an exchange-traded fund that seeks to track the Bloomberg U.S. Inflation-Protected Securities Index, which consists of 49 TIPS, diversified across a range of maturities, from short- to intermediate- to long-term.

iShares TIPS Bond ETF Performance

The iShares TIPS Bond ETF performs slightly below the TIPS index, but above the broader aggregate bond index, for all time periods through March 31, 2022.

Here is where a $10,000 investment in TIP, 1 year, 3 years, 5 years, and 10 years ago, would be as of March 31, 2022:

• 1 year ago: $10,407
• 3 years ago: $11,910
• 5 years ago: $12,313
• 10 years ago: $12,851

iShares TIPS Bond ETF Structure, Objective & Holdings

• Inception Date: 12/04/2003
• Sponsor: Pacific Investment Management Company, LLC
• Ticker: TIP
• Primary exchange: NYSE Arca
• Structure: Open-ended investment company
• Objective: Track the Bloomberg U.S. Inflation-Protected Securities Index
• Holdings: 49 TIPS, averaging a 7.26 duration.

TIP ETF Quant Rating Grades

Bottom Line

Since TIPS typically have lower yields than Treasury bonds, but generally have better price performance during inflationary environments, investors may want to invest in TIPS to protect against inflation. However, TIPS and TIPS ETFs still carry interest rate risk, and they tend to underperform when inflation is less of a concern than expected.