UBS launches long-duration US TIPS ETF with GBP-hedging

Mar 13th, 2019 | By | Category: Fixed Income

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UBS Asset Management has unveiled the UBS Bloomberg Barclays TIPS 10+ UCITS (hedged to GBP) A-dis on London Stock Exchange (T10G LN) and SIX Swiss Exchange (TIP10G SW).

UBS launches long-duration US TIPS ETF with GBP-hedging on London Stock Exchange (T10G LN) and SIX Swiss Exchange (TIP10G SW)

UBS has launched a long-duration US TIPS ETF with GBP-hedging on the London and Zurich stock exchanges.

The new ETF provides sterling-hedged exposure to long-duration US Treasury Inflation Protected Securities (TIPS).

The ETF is linked to the Bloomberg Barclays US Government 10+ Year Inflation-Linked Bond hedged to GBP (Total Return) Index, a market capitalization-weighted sterling-hedged index tracking TIPS with a time to maturity of at least 10 years.

TIPS are securities whose principal is tied to the US Consumer Price Index. The principal increases with inflation and decreases with deflation. When they mature, the US 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. By investing in TIPS, investors give up a predictable income stream for the assurance (assuming no default) that their investment will maintain its purchasing power in the case of inflation.

In an environment of elevated inflationary pressures, TIPS can play a role in helping to inflation-proof a portfolio and deliver a real yield over and above inflation rates.

Andrew Walsh, Head of Passive and ETF Specialist Sales UK & Ireland, said: “We are very pleased to expand our fixed income offering to include a fund which helps our clients achieve targeted exposure to long-duration US TIPS coupled with the benefits of GBP-hedging.”

The inclusion of an embedded currency hedge can be a useful feature, smoothing returns in times of heightened foreign exchange volatility, as has been witnessed in GBP/USD over the past couple of years.

Currency hedges can also be used to implement an active bet on the future path of a currency pair – in this case, that pound sterling strengthens against the dollar.

According to Walsh, “Sterling-based investors who are considering US Treasuries with inflation protection and believe that there is scope for the GBP to appreciate against the USD should examine this unique ETF”.

Currency hedges are achieved by selling currency forwards at the one-month forward rate.

The fund comes with a total expense ratio of 0.25% and is traded in GBP.

It joins a stable of inflation-linked UBS ETFs, available in hedged and unhedged variants, including the shorter duration UBS ETF Bloomberg Barclays TIPS 1-10 UCITS ETF (hedged to GBP) A-ac and the unhedged UBS Bloomberg Barclays TIPS 10+ UCITS ETF (USD) A-dis.

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