Goldman Sachs launches “smarter” TIPS ETF

Oct 8th, 2018 | By | Category: Fixed Income

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Goldman Sachs Asset Management has launched the Goldman Sachs Access Inflation Protected USD Bond ETF (GTIP US) on Cboe BZX.

Goldman Sachs launches smart beta TIPS ETF

The Goldman Sachs Access Inflation Protected USD Bond ETF offers a smart beta spin on the US Treasury Inflation Protected Securities market.

The ETF endeavours to provide a “smarter” way to invest in treasury inflation-protected securities (TIPS).

TIPS differ from regular Treasury securities in that the principal amount of a TIPS issue is adjusted over time to reflect changes in the underlying Consumer Price Index.

This feature allows funds tracking the space a means of protecting investors’ portfolios against potential increases in US inflation.

While previous ETFs targeting TIPS generally offer a broad, plain-vanilla strategy, GTIP takes more of a specialist approach tracking the FTSE Goldman Sachs Treasury Inflation Protected USD Bond Index, an index developed in partnership with FTSE Russell.

The index’s universe is limited to securities with at least one year to maturity and an issuance size of $5 billion outstanding. The methodology then excludes unseasoned bonds, or the newest issues for each security term. According to GSAM, this step helps the strategy avoid bonds with inflated prices caused by the forced over-buying of the “on-the-run” TIPS market.

Constituents are weighted in such a way that the index matches the weighted average real yield duration of the TIPS universe.

The index has an effective duration of 7.5 years, indicating the fund will exhibit moderate sensitivity to interest rates increases.

“In an inflationary economic environment, GTIP provides investors with a potential hedge through its innovative screening approach to TIPS bonds,” said Michael Crinieri, GSAM’s Global Head of ETF Strategy. “The addition of GTIP further highlights the mission of our Access ETF line-up, providing investors with lower-cost bond funds.”

“TIPS present an attractive diversification opportunity for many investors with relatively low correlations to other major asset classes,” added Jason Singer, portfolio manager for GTIP. “We are excited to extend our Access ETF line-up and provide investors with a smarter, more systematic way to invest in the bond market.”

GTIP comes with an expense ratio of 0.12% which is approximately middle of the road compared to similar funds. It is cheaper than the largest TIPS ETF tracking the space, however, undercutting the $23.5bn iShares TIPS Bond ETF (TIP US) by eight basis points.

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