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TIPS FUNDS/ETF’s,,,,,,, has 2022 proven them losers?

I understand that a TIPS ETF is a pool of bonds and bonds lose value when rates go up. I understand that TIPS have an inflation adjust to possibly keep up with inflation. What we have seen is that the adjustment fails to keep up with the decline in bonds value and TIPS ETF’s are losing money on a total return basis. Soon we will have another rate increase and another leg down for TIPS share price. I am not interested in owning actual TIP bonds. Can anyone suggest a reason to continue to own a TIPS ETF,,,,, even one with a very short duration? Losing money is losing money…..


  • I have written on TIPS earlier for MFO in the Feb issue. Here is the link:

    The 1st tool for inflation protection and the easiest one is Series I bonds. Each American tax payer can buy it for 10K online and 5k in paper through Tax refunds. That is the easy part because you can never lose mark to market money in that product. One doesn't even have deflation risk (I know, an odd think to think about right now) in Series I bonds. You are always protected at a zero inflation floor and get paid more than that if CPI is higher.

    But what should we do AFTER I bonds, if anything.

    One can always leave money in cash. Cash is always going to protect the notional value, provided, the 8-9% inflation we have witnessed in the last 12 months does not bother the person.

    It's understandable if people look for protection against inflation. When you've satiated your I bond capacity and don't want to leave in cash, what are the other tools available.

    1. TIPS
    2. Commodities?
    3. Real Estate?
    4. Thoughtfully managed short-end taxable mutual funds?

    There are no guaranteed answers but TIPS have a 100% correlation to CPI-U. Do remember that the calculation of CPI in the TIPS accruals is lagged by 3 months.

    Complete details on how TIPS work can be seen in this video I produced a few years back:

    A great website on TIPS is maintained by David Enna:

    I can tell you why I continue to hold short-dated TIPS.
    YTD, the VTIP (Vanguard Short-Term Infl-Prot Secs ETF) is down 1.53% year to date. How should I process that information given the high CPI we have witnessed thus far.

    YTD, the price return of VTIP has been -3.8% and the total return has been -1.5%.

    This means, TIP owners have been paid 2.5% in "interest" from CPI. But because of lagged use of CPI and not enough time gone by, this 2.5% is less than 6-7-8-or-9% that might be accrued due to CPI increases when the year is done. Not all of the interest will accrue right away but it will all make its way through the TIPS eventually.

    Another question to ask is: what would I have held instead that is Bond like?
    1. TIP (7.5 year duration) -8.9% ytd
    2. LTPZ (20year duration) - 26% ytd
    3. Short Term Treasuries -3.5% ytd
    4. Intermediate Term Treasuries -7.7% ytd
    5. Long Term Treasuries - 22% ytd

    What would have been US Government paper and "safer"? Maybe 3 month T-bills would have been fine. And that's the same as cash.

    Once an investor goes outside of the TIPS universe for inflation protection, one opens up a can of unknowns.
    Equity REITS -20%,
    Commodities and Commodity stocks did great for a while and recently had a 30-50% correction based on what one owned.

    Volatility matters for meeting goals. VTIP was the cleanest among the dirty shirts.

    If absolute returns is your goal, and it's a good one, in the Fixed Income Taxable bond universe, RiverPark Short Term High Yield Institutional, RPHIX, is UP on the year. David Sherman's been phenomenal in keeping the fund above the surface in 2022.

    FPA New Income, apparently Open, but I cant buy it because it shows up Closed due to Schwab not having updated their database, is also long a lot of Floating rate bonds that will help the fund in the future.

    I continue to be long VTIP because I believe that even if Fed raising rates further has an impact on Duration and Real Yields, and it hurts VTIP, eventually you get paid through CPI as long as inflation remains sticky. And if inflation comes down, the portfolio would benefit from OTHER assets. *unless we are in stagflation, in which case, God help*

    Hope this was helpful.

  • edited July 2022
    Yet another way to decide if TIPS are interesting is to look at the Break Even Yield.

    1yr 3.99
    2yr 3.45
    3yr 2.99
    5yr 2.75
    7yr 2.47
    10yr 2.37
    30yr 2.24

    What do these numbers mean? The 1yr 3.99 means that the "market" expect CPI_U to be 3.99% over the next 1 year. Over the next 7 years, on average, the CPI_U will be 2.47% a year.

    How should we process that? Should we trust the bond market that inflation is going to come back down to more or less what it was before the recent spike to 8-9%?

    Should we disagree with the market? If one thinks inflation will be much higher, and I dont have the slightest idea, what inflation will be, TIPS offer a way to protect against that. The Mark to Market of holding a 7 year TIP doesnt matter if in the end the inflation is going to come out at 6% (for example).

    At 6% inflation for next 7 years, TIPS will win hands down, and fixed bonds will get destroyed. I gave the 6% number as an outlandish case to prove a point.

  • >> VTIP was the cleanest among the dirty shirts.

    @Devo, fwiw, STIP regularly outperforms VTIP, by a few bucks.
  • Thanks for all of your thoughtful comments.
    STIP. -1.57%
    PZRMX -4.51%. Pimco Inflation response multi asset
    Prfrx. -4.98%. TROW floating rate

    All as of July 8 data from M*…. Apparently fighting inflation is not that easy. More money has been lost fighting inflation than at the point of a gun.

    Money in my grandson’s piggy bank is even for the year. He told me he could handle losing money in stocks but not in the safe part of his portfolio.

    The fact that TIPS are losing less than AGG and the like is meaningless.

  • edited July 2022
    I wonder whether the problems discussed above are related to the personal decision not to buy TIPS or T-bonds and hold them until maturity? I am considering buying T-bills. I never did it, so maybe I am confused by something, but I see that 52 week T-bills yield almost exactly 3%. I understand that I would miss liquidity for 1 year, but can you suggest anything else risk free (apart for I-bonds) which gives 3% per year guaranteed? Same logic should apply to TIPS, but holding them for 5 years is something to be considered more carefully. Any comments?
  • I agree with your logic but for me idea of having lots of TIP bonds would be contrary to my goal of simplicity and less moving parts to our family portfolio. I got out of Bond funds and ETF’s when it was obvious rates were going up with the exception of STIP. I built a less than perfect CD ladder with too many parts. They mature now and then and if I weren’t around to make a decision about reinvesting it wouldn’t get done.
  • TIPS are bonds with inflation-adjustments.

    Any bond cashed before maturity will have price determined by the current interest rates. And as TIPS funds hold a variety of TIPS, and many are not held to maturity, so TIPS funds will have rate sensitivity. But shorter-term/duration TIPS will have less rate sensitivity.

    Individual TIPS held to maturity will deliver the full CPI adjustment over their term. The shortest TIPS issue maturity is 5 yrs. I have posted on these at
  • edited July 2022
    finder said:

    I am considering buying T-bills. I never did it, so maybe I am confused by something, but I see that 52 week T-bills yield almost exactly 3%.

    You got it, T bills are still gaining yield. I figure 3.05% based on the "price for $100" figure for the most recent 52 wk. auction. Makes me wish I hadn't started buying bills as soon as I did.
  • For T-Bills, Treasury provides both the discount-from-par rate (normal) and coupon-equivalent rate (hypothetical, if the interest was paid semi-annually).
  • I have mentioned this before, but it is worth looking at PFIX for inflation protection. Harvey Bassman at "Convexity Maven" has designed this ETF with swaps on treasury futures to tract inflation. He has a great web site with lots of data and tables indicating the performance of PFIX with various inflation scenarios, including how many $ you should allocate to PFIX to "protect" a portfolio of bonds.
  • @davidrmoran Hey, you're back. I was hoping you'd return and that nothing bad had happened.
  • edited July 2022

    @davidrmoran Hey, you're back. I was hoping you'd return and that nothing bad had happened.

    Will confess I missed his snarkiness too.
  • edited July 2022
    @LewisBraham, thank you. Appreciated.

    All well. I just have not been in the mood anymore, with so much financial loss. (The straw at the time was reading loopholes about 'unintentional / inadvertent' naked shorting, which made me decide life is too short for MFO discussions.)
    Also, people can (should) read Krugman et alia about macro issues on their own; his Twitter thread is free and his links to others mostly so.
    (Also not enough delving here of CDC, COWZ, CCOR, DSTL, STIP and other current objects of my affections.)
    Otherwise, same boat as most, I expect. I am glad to hold so much FMSDX and VONE/VONG, but remain stunned at the behavior of BND, BSV, VGIT, VGSH, and RWGV. Tough market.
  • @davidmoran, glad to see you return. Yes, it has been a tough year. When both stocks and bonds go down at the same time, there are few safe options left other than cash. With CPI reported this morning at 9,1%, cash is losing figure buying power too.
  • edited July 2022
    Read Justin Wolfers on twitter (edited)
  • @davidmoran: my faith in COWZ remains intact, but it has been tested in recent weeks. I did reduce MOAT as its methodology put it in a tough spot. Of course it underwent holdings changes at the end of Q2, so maybe a trajectory that made me queasy will reverse. CDC, which I do not own, has held up very well. Other bucks that might be in straight equity funds have found their way into alternative strategies, all of which were suggested in MFO Commentary or discussions.

    Energy continues to be the gorilla in the room and many value strategies have loaded up on it, especially Smead Value and Smead International and the several offerings from Rajiv Jain and his team at GQG. The problem is they can’t all get out profitably at the same time.

    Under the rubric « Ben’s latest crazy idea, » I am putting money into HAPY, on weakness (as if that were not a quasi-permanent state of the markets). This is money that I can leave untouched and I feel comfortable with the fund’s methodology and its holdings in America’s great companies.

  • @davidmorman

    thanks for link to Yahoo re PFIX. I am not well versed enough in options and swaps to know why PFIX volatility is higher than the interest rate volatility, although I suspect it has to do with the time frame Bassman is aiming at ( ie 2024 or longer). He has a large amount of information on his web page about sizing of positions to protect a much larger bond portfolio. Well worth reading.
  • +1 David My bond wakeup call occurred in 1Q 2020, when BBBMX and TRBUX suffered IMHO significant losses which were erased with QE. When My fund holding PTIAX started declining in 2022, I said heck no-I'm not going through this again . Sold all my bonds and moved proceeds into Brokered CD's yielding 3-3.4%. Too much bond volatility for me!
  • @carew388: I did the same with PTIAX. Down 10%+ this year, while IOFAX has lost almost 20%.
  • @BenWP

    >> Other bucks that might be in straight equity funds have found their way into alternative strategies, all of which were suggested in MFO Commentary or discussions.

    do go on

    >> feel comfortable with the fund’s [[HAPY]] methodology and its holdings in America’s great companies

    this too
  • edited July 2022
    @carew388, very wise move to CDs. As rate goes up, new CD issues will have higher rates too. Are you with Schwab or Fidelity? Just curious.
  • @davidmoran: Snowball profiled HAPY a couple if months ago when it came to market. There are links to its methodology; in a nutshell, companies whose employees are satisfied see outperformance in their stock. My reaction to reading the list of stocks held reminded me of my reaction to my reading of the holdings of BIAWX: « these are the stocks I want my manager to buy. »

    As for the alternatives: managed futures as in PQTAX and KMLM, and multi asset (all weather) as in BLNDX/REMIX. Snowball also wrote about the latter and there have been several discussions touching on these funds. I’m too chicken to short and I know zilch about currencies and commodities; ergo, let the experts loose. Other members have commented on alternative funds they are using.
  • Sven most of the CD's are at Fidelity-1 is at Schwab but Fido seems to have a better selection.
  • Thanks. I prefer to buy new issues, especially in rising rate environment. In two more week, the Fed will likely to raise rate by 100 bps. New CD yield will keep rising.
  • @davidmoran: a SeekingAlpha author today claimed that CDC was currently 75% in cash and said this was part of the fund’s mandate, given the weakness in the market. Are you holding any?
  • Not yet
  • @davidmoran: not sure what you mean by « CCOR? » A suggestion?
  • edited July 2022
    BenWP said:

    @davidmoran: not sure what you mean by « CCOR? » A suggestion?

    @BenWP - CCOR IS an ETF, Core Alternative . @LewisBraham described it as “interesting” several months ago. I’ve been tracking it since than. Looks inviting, but ISTM the daily volatility is unusually high for a conservative fund - although over weeks / months it looks quite tame. Fell by about 4% over several weeks recently and than gained that all back in a single day. I’d prefer to let others own this one.

    “CCOR is an actively managed ETF that seeks capital appreciation and preservation with low correlation to the broad US equity market. The fund primarily holds dividend-paying large-cap stocks with an option collar overlay. CCOR focuses on high-quality US equities that offer current dividends.” Source
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