TIPS ETF Grows to Largest Level Since 2013

Mar 31, 2016 1:04 pm ET

Investors are piling money into investments that hold Treasury inflation-protected securities.

Total assets in the iShares Barclays TIPS Bond Fund ^[1], the biggest TIPS exchange-traded fund, have climbed 16% this year to $16.5 billion as of Wednesday. According to Morningstar data, it's the most assets since June 2013. ETFs tracking TIPS have taken in a record $2.14 billion so far this year, according to Markit.

The iShares ETF is on track to return 4.5% for the first three months of the year, its best quarter since 2004.

"You've done quite well if you've been in any type of inflation product," said Tom di Galoma at Seaport Global Securities, who added that TIPS have helped propel some bond fund managers to their best-ever quarterly performance.

The prices of TIPS–which grow in value alongside inflation–have picked up amid signs the Fed won't act immediately to tamp down price pressures that have picked up in recent months. In February, an index of consumer prices, minus food and energy, rose 2.3% from a year ago, marking a continued uptrend in inflation.

The Fed is, "letting things take their own course," Mr. di Galoma said. "And people think because of that, inflation is going to rear its ugly head, and we are going to see a fairly decent inflation ramp."

Fixed income ETFs did well across the board. The iShares Core U.S. Aggregate Bond ETF ^[2] has garnered 14% of new fixed-income ETF assets over the past three years, making it the largest bond ETF with $34.8 billion in assets, according to Michael Shaoul, chairman and chief executive of Marketfield Asset Management.