Staving Off Inflation With the iShares 0-5 Year TIPS Bond ETF

For investors looking for a fund that provides excellent coverage of the U.S. short-term Treasury Inflation-Protected Securities (TIPS) market, the iShares 0-5 Year TIPS Bond ETF (NYSEARCA:STIP) may be of interest.

The fund tracks TIPS with a remaining maturity of fewer than five years and offers a somewhat more diverse portfolio than competitor PIMCO 1-5 Year U.S. TIPS Index Exchange-Traded Fund (NYSEARCA: STPZ), which excludes TIPS bonds that have a maturity of less than one year. Though bonds that have a shorter maturity have a lower yield, they are a wise choice for investors seeking protection from interest rate risk. 

Investors who are looking for comprehensive exposure to the short-term TIPS market may want to look into STIP. The fund provides ample liquidity for all types of traders and trades briskly every day with small spreads. In terms of the fund’s efficiency, it ranks highly as it maintains tight tracking and has a minimal fee that keeps holding costs to a minimum.

The fund has an expense ratio of 0.05% and a dividend yield of 1.33%. STIP has $3.92 billion in assets under management and $3.68 billion in net assets. It launched in late 2010, and it has performed steadily in the last year, as the chart below shows.

STIP spiked greatly in April and climbed upward from that point. It dipped mildly at the beginning of November and then regained its traction toward the middle of the month. This morning, March 17, the fund opened at $105.83, which is at the high end of its 52-week range.

Courtesy of Stockcharts.com

The ETF’s top three holdings, which make up 22.12% of its total assets, are: United States Treasury Notes 0.63%, 10.18% of assets; United States Treasury Notes 0.13%, 6.24%; and United States Treasury Notes 0.5%, 5.71%.

This fund is a highly efficient one with strong liquidity. Moreover, it is less risky than other funds as it holds short-term bonds that are well-shielded from interest rate risk. STIP is a better match to the market it tracks than its competitor STPZ, as it holds bonds with a maturity of fewer than five years, while STPZ does not hold bonds with a maturity of less than a year. So, for investors looking for a briskly traded, low-fee fund with comprehensive exposure to the short-term TIPS market, the iShares 0-5 Year TIPS Bond ETF (NYSEARCA:STIP) may be of genuine interest. 

However, I urge interested investors to conduct their own due diligence to decide whether this fund fits a particular individual’s personal portfolio goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.