In a universe of ETFs that covers everything from timber -- Claymore/Clear Global Timber (CUT) - Get Report -- to Taiwan -- iShares MSCI Taiwan Index (EWT) - Get Report -- investors are seeking protection as well as opportunity.
iShares Barclays TIPS Bond
Fund is one of the more conservative portfolio choices that equity-wary investors have added to their ETF picks as the question of inflation looms larger on the horizon. TIP tracks an index of U.S. Treasury inflation-protected securities (TIPS) that have at least one year remaining to maturity, an investment-grade rating and more than a $250 million face value.
Inflation, or at least the fear of inflation, could be the result of the hefty stimulus package proposed by the current administration. A recent Bloomberg News survey of 57 economists suggested that U.S. consumer prices may rise 1.6 percent in 2010.
While TIPS pay a lower coupon than regular Treasuries, the advantages in an inflation-fearful economy may be worth the wait. According to the
bond indices, regular Treasuries have lost 3.9 percent including interest payments this year while TIPS have returned 3.6 percent.
Many of the short-term Treasury-trading strategies involve more analysis and practical obstacles than an individual investor can commit. TIP, on the other hand, represents a "big picture" strategy -- it can be a long-term statement on the impacts of the current monetary policy.
TIP is a good middle-of-the-road investment for individuals who fear inflation but not a major government apocalypse. When considering Treasury ETF investments, you should consider your time frame. Short-term Treasury trends have been making headlines since an enormous influx in 2008 put 30-year Treasury bonds below 3%.
As investors have regained some kind of threshold for risk, the tide of Treasury buyers has again receded, dividing analysts over short-term and long-term implications. A long-term investment in TIP will not capture the ebb and flow during the current treasury uncertainty, but provide an alternative to cash as the effects of government spending wash over the economy.
TIP could still topple, critics say, if the government fiddles with consumer price index information. Others point to possible deflation or stagflation as the possible result of current monetary policy.
When compared to other treasury ETFs like the
SPDR DB International Government Inflation-Protected Bond
fund and the
ProShares Ultra Short 20+ Year Treasury
, TIP offers a conservative approach and a longer track record. While TIP may be the equivalent of a carousel in the amusement park of a volatile portfolio, it will be a staple that unsettled investors keep returning to.
TIP is a liquid, well-constructed ETF with a low expense ratio. Investing in TIP may not deliver the same rush as trading in and out of cleverly named sector ETFs that have abounded in the last few years, but the long-term effects may be more satisfying. TIP should serve as a reminder to investors of how ETFs can serve a larger role in long-term money management.
While you may be in and out of iPath DJ AIG Sugar
Market Vectors Steel
iShares MSCI Emerging Markets Index
faster than you can say "
iShares MSCI Mexico Investable Market Index
," your investment in TIP can serve as a long-term alternative for some of your cash position.
Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers. Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years� experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.