UBS unveils suite of US Treasury Inflation-Protected ETFs

Nov 30th, 2016 | By | Category: Fixed Income

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UBS Asset Management has launched a new suite of exchange-traded funds offering investors inflation risk mitigation by tracking US Treasury Inflation-Protected Securities (TIPS).

UBS unveils suite of US Treasury Inflation-Protected ETFs

Andrew Walsh, Head of ETF Sales UK at UBS Global Asset Management.

Four of the ETFs track the Barclays TIPS 1 – 10 Index – one offers unhedged currency exposure while trading in British pounds and the remaining three utilise currency hedge overlays relative to the British pound, Swiss franc, or the euro. UBS has also listed an ETF, trading in British pounds, and tracking the Barclays TIPS 10+ Index, thereby providing investors with a choice between accessing shorter or longer term US TIPS.

TIPS securities 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. TIPS pay interest twice a year at a fixed rate. Although the coupon rate for the TIPS issue is fixed throughout its life, it is applied to a principal amount which varies accordingly over time in response to the rate of inflation or deflation. As such, increases in inflation correspond to increased principal and coupon payments. Investors should note however that decreases in inflation would lower the dollar value of coupon and principal payments.

Andrew Walsh, Head of UBS ETF Sales UK & Ireland, commented: “There is growing sentiment in markets that inflationary pressures may start to rise again after an extended period of low interest rates and the potential impact of nascent signs of fiscal stimulus from the US and elsewhere. With this innovative suite of ETFs our clients our able to protect long-term purchasing power and gain access to an asset class that compounds the real rate of return.”

The newly-launched ETFs, their trading currencies, and their total expense ratios (TERs) are listed below:
UBS Barclays TIPS 1-10 UCITS ETF (LON: UBTS) – GBP – TER: 0.20%
UBS Barclays TIPS 1-10 hedged GBP UCITS ETF (LON: UBTP) – GBP – TER: 0.25%
UBS Barclays TIPS 10+ UCITS ETF (LON: UBTL) – GBP – TER: 0.20%
UBS Barclays TIPS 1-10 hedged CHF UCITS ETF (SIX: TIP1S) – CHF – TER: 0.25%
UBS Barclays TIPS 1-10 hedged EUR UCITS ETF (SIX: TIP1E) – EUR – TER: 0.25%

Other ETFs providing exposure to the TIPS market include offerings from iShares and SSGA, namely the iShares $ TIPS UCITS ETF (LON: IDTP) which has a TER of 0.25% and the SPDR Barclays US TIPS UCITS ETF (LON: TIPS) which has a TER of 0.17%. Both ETFs track the Barclays US Government Inflation-Linked Bond Index, which tracks the performance of a broad range of TIPS with at least one year remaining to maturity. As of 31 October 2016 the index is up 7.2% year-to-date.

In August 2016, Lyxor launched the Lyxor US TIPS UCITS ETF (LON: TIPU), also tracking the same index as the iShares and SPDR funds. The ETF is the cheapest UCITS ETF to offer exposure to the TIPS market with a TER of just 0.09%. It is available to trade in USD (ticker: TIPU) and GBP (ticker: TIPG).

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