It seems like everyone and their brother is anticipating inflation, but their reactionary moves are coming in a little early. What many may not realize is that TIPS exchange traded funds (ETFs) don't do as well in non-inflationary environments.
TIPS - or Treasury Inflation-Protected Securities - have gained 17% over the last two years. Now some traders are saying that TIPS ETFs could lose value as consumer prices don't rise fast enough to justify the gains, says Investment News . [ TIPs ETFs: A Surge in the Making. ]
Yields on 10-year TIPS show that investors expect the consumer price index to increase an average of 2.18% a year. The problem? The CPI went up just 1.5% in 2010, and this year it's forecast to rise 1.7%. [ It Might Be Time for TIPS ETFs. ]
It's been suggested that investors approach TIPS strategically, instead of a buy-and-hold-forever opportunity, because tactically trading them could shortchange investors of the rewards they offer. That's because inflation is a noisy measure in the short-term because it's a monthly number; the long-term trends should be viewed to see where the overall trajectory is going.
When inflation does rear its ugly head, you'll have a wide range of TIPS funds to play it, including iShares Barclays TIPS (NYSEArca: SCHP).
Tisha Guerrero contributed to this article.