Lyxor launches GBP-hedged version of US TIPS ETF

Mar 10th, 2017 | By | Category: Fixed Income

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Lyxor has unveiled the Lyxor US TIPS GBP Monthly Hedged UCITS ETF (LON: TIPH), providing access to a portfolio of US Treasury Inflation-Protected Securities (TIPS) while sheltering investors from adverse currency movements between the US dollar and the British pound. It tracks the Barclays US Government Inflation-Linked Bond Hedged GBP Index.

Lyxor launches GBP-hedged version of US TIPS ETF

The Lyxor US TIPS GBP Monthly Hedged UCITS ETF may suit investors who are concerned about the impact of rising US inflation and the effect of a depreciating dollar on US sterling-denominated investments.

The fund will appeal to investors concerned about the impact of changes to US inflation as TIPS provide investors with protection against rising prices. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the US Consumer Price Index. When a TIPS matures, investors are paid the adjusted principal or original principal, whichever is greater. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.

The ETF will also suit those investors worried about the effect of a depreciating dollar on the portfolio’s value, given that the ETF trades in pounds. The GBP-hedged share class offers the simplicity of a daily currency hedge mechanism that is embedded in the investment product, representing an efficient solution to manage the foreign-exchange risk.

It has a total expense ratio (TER) of 0.20%.

This currency-hedged ETF follows the August 2016 launch of the original unhedged fund versions which trade in USD (Ticker: TIPU) or GBP (Ticker: TIPG). At the time of the original launch, the fund was the cheapest Europe-listed ETF to offer exposure to US TIPS with a total expense ratio of just 0.09%.

Other TIPS offerings include those from iShares and SSGA, namely the iShares $ TIPS UCITS ETF (LON: IDTP) and the SPDR Barclays US TIPS UCITS ETF (LON: TIPS), which cost 0.25% and 0.17% per annum respectively. Both funds track the same Barclays US Government Inflation-Linked Bond Index.

In the current low-yield environment, price advantages related to fees will no doubt play a more significant role in attracting fund assets.

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