DWS launches low-cost US TIPS ETF

Nov 9th, 2022 | By | Category: Fixed Income

DWS has launched a new fixed income ETF in Europe offering low-cost exposure to US Treasury Inflation-Protected Securities (TIPS).

DWS launches low-cost US TIPS ETF

DWS has introduced Europe’s cheapest ETF targeting US Treasury Inflation-Protected Securities.

The Xtrackers TIPS US Inflation-Linked Bond UCITS ETF has been listed on London Stock Exchange in US dollars (XTIP LN) and on Deutsche Börse Xetra (XTIP GY) in euros.

The fund is linked to Markit iBoxx TIPS Inflation-Linked Index which consists of TIPS issued by the US government with remaining maturities greater than one year. Eligible issues must have a minimum amount outstanding of $2 billion.

The index is rebalanced on a monthly basis with constituents weighted by market value.

TIPS differ from regular US Treasury bonds in that the principal amount of a TIPS issue is adjusted over time to reflect changes in the underlying Consumer Price Index. When they mature, the Treasury pays the original or adjusted principal, whichever is greater.

TIPS are designed to offer a real rate of return and, hence, provide a degree of protection against rising inflation. In an environment of elevated inflationary pressures, TIPS can play a role in helping to inflation-proof portfolios and deliver a real yield over and above inflation rates.

The fund has debuted at a time of heightened inflation in the US, as well as globally, with the US Consumer Price Index increasing 8.2% year-over-year in September, according to data from the Bureau of Labor Statistics.

The ETF comes with an expense ratio of 0.07%. Income is accumulated within its portfolio.

The fund’s low price tag makes it the cheapest ETF in Europe providing exposure to US TIPS. Its closest competitor is the $1.5bn Lyxor Core US TIPS (DR) UCITS ETF (TIPU LN), which has an expense ratio of 0.09%, while the largest US TIPS ETF in Europe is the $4.0bn iShares $ TIPS UCITS ETF (IDTP LN), which costs 0.10%.

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