US Treasury inflation-protected securities (TIPS) are bonds the US government issues. The inflation protection comes in the form of face value adjustments by the US Treasury based on the Consumer Price Index (CPI), which is the main measure of inflation.
TIPS ETFs may not perform as well as other ETFs, such as technology, growth or even dividend ETFs in the long term, but in times of inflation, they can be a worthwhile investment. They’re also a hedge against future inflation. In a deflationary economy, however, TIPS ETFs will perform poorly compared to other types of bonds and ETFs.
TIPS ETFs give you access to these inflation-protected bonds without directly buying the bonds. Due to the nature of the investment, TIPS ETFs that access US bonds perform roughly the same.
I compared 16 TIPS ETFs and chose the top three that offered the highest year-to-date (YTD) returns or that had the highest one-year returns. Two of these ETFs track either a different measure of inflation or track the TIPS in other countries, which is why they outperform the rest.
1. ProShares Inflation Expectations ETF (RINF)
This ETF is the best performer out of all TIPS ETFs. It also outperforms many other types of ETFs. The ProShares Inflation Expectations ETF tracks the FTSE 30-Year TIPS Index. The index is designed to measure the performance of the Break Even Rate of Inflation (BEI), which is a different measure of inflation than the standard. Other ETFs track the standard measure, which is the CPI. This is why the performance of this ETF and other TIPS ETFs differ.
- YTD gain (June 2021): 11.99%
- 1-year gain (June 2021): 25.37%
- Expense ratio: 0.30%
2. SPDR FTSE International Government Inflation-Protected Bond ETF (WIP)
This ETF provides exposure to inflation-linked bonds of developed and emerging market countries. The way the ETF does that is by tracking the FTSE International Inflation-Linked Securities Select Index. As of February 28, 2021, the index covered the following countries: Australia, Brazil, Canada, Chile, Colombia, France, Germany, Israel, Italy, Japan, Mexico, New Zealand, South Africa, South Korea, Spain, Sweden, Turkey and the United Kingdom.
- YTD gain (June 2021): -1.14%
- 1-year gain (June 2021): 10.17%
- Expense ratio: 0.50%
3. iShares TIPS Bond ETF (TIP)
iShares TIPS Bond ETF TIP offers direct exposure to the entire Treasury Inflation-Protected Securities yield curve for one of the lowest fees. This ETF tracks the Bloomberg Barclays US Treasury Inflation-Linked Bond Index, which includes US TIPS with at least one year until maturity.
- YTD gain (June 2021): 0.02%
- 1-year gain (June 2021): 4.92%
- Expense ratio: 0.19%
TIPS ETFs offer exposure to bonds issued by the US government or other governments. But unlike standard bonds, TIPS ETFs have a principal that adjusts based on certain measures of inflation. Because of this perk, investors often use them to protect their portfolios against inflation.
If you’re not sure this is a worthwhile investment for you, compare the best ETFs to find the right one for your needs.
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