TIPS Down, but Not Out

Investors who tried to find sanctuary from portfolio-rotting inflation via the TIP exchange-traded fund may be wondering why their fund is falling while inflation keeps rising.

The iShares Lehman TIPS Bond (TIP Quote), which invests solely in Treasury Inflation Protected Securities (TIPS), is down 1.99% so far this year, providing little comfort to those who believed they'd be "protected" as the fund's name suggests.

The downturn comes as rising interest rates create volatility for the TIP ETF's short-term investors. Longer-term holders, however, still may be poised to benefit as rate changes smooth out.

As a whole, the TIPS situation may not be as bad as it appears on the surface, says Matt Tucker, head of product strategy for fixed income at Barclays Global Investors, the firm that birthed the TIP ETF. ...