LQD) have been the biggest asset gatherers for iShares so far this year. This isn't the first shot that PIMCO's fired across iShares' bow. PIMCO's initial fixed-income product, the 1-3 Year U.S. Treasury Index Fund ( TUZ), is squarely aimed at iShares Barclays 1-3 Year Treasury Bond ( SHY). Rather than reinventing the wheel, Pimco decided to make a cheaper one. TUZ has an expense ratio of 0.09% while SHY has expenses of 0.15%, according to Morningstar ( MORN).
STPZ and TIP both have expense ratios of 0.20%, but Pimco's offering is more focused. TIP is based on the Barclays Capital ( BCS) U.S. Treasury Inflation-Protected Securities (TIPS) Index, which contains all TIPs securities with at least one year until maturity. STPZ tracks the more time-sensitive Merrill Lynch ( BAC) 1-5 Year U.S. Inflation-Linked Treasury Index. PIMCO has plans to launch two more TIPs ETFs in September. The Pimco 15+ Year U.S. TIPS Index Fund and PIMCO Broad U.S. TIPS Index Fund offer focused exposure to TIPs and capture the spirit of the ETF industry. As the ETF industry has grown, ETF issuers have found increasing success with focused products. Rather than simply offering a commodity ETF, issuers offer individual metals and agricultural products. This same pattern is emerging with TIPs funds. TIP has raked in a huge amount of assets for iShares and other issuers are looking for ways to capitalize on the idea. The STPZ fact sheet argues that a short maturity TIPS index had less interest rate risk and exhibited higher correlation to inflation and lower volatility than the index that TIP tracks. The new PIMCO funds will take time to garner investor interest and build trading volume. During this period, the funds could be volatile. Investors who are sure of their inflation time horizon may want to consider STPZ now, while longer-term investors are better off sticking with TIP. -- written by Don Dion in Williamstown, Mass.