Fidelity Offering TIPS to Investors

Fidelity Investments is launching a new bond fund aimed at investors who are concerned about rising inflation.

The new fund will hold U.S. Treasury inflation-protected securities, or TIPS, which were introduced by the federal government in 1997. The bonds' principal is adjusted to rise with inflation; specifically, the principal rises in accordance with the consumer price index.

Fidelity is slightly behind the curve in introducing its TIPS fund, although the timing is sound: The small universe of TIPS funds (Lipper tracks just six such funds) has done very well of late. Pimco's Real Return Fund (PRTNX Quote)PRTNX, the first inflation-protected bond fund, was opened on the day of the initial TIPS auction in 1997 and now has nearly $4 billion in assets. Vanguard's $1.4 billion Inflation Protected Securities fund (VIPSX Quote)VIPSX, the second largest, was introduced in June 2000.

The two funds are also the best-performing of the group. Pimco's actively managed fund has returned 6.3% this year, while Vanguard's index fund gained 6.1%. ...