A Low-Cost Inflation-Protected Bond ETF
This Vanguard exchange-traded fund is a good option for protecting your portfolio from Consumer Price Index fluctuations.
Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) is one of the cheapest funds providing exposure to the short-end of the Treasury Inflation-Protected Securities market, earning it a Morningstar Analyst Rating of Gold. The exchange-traded fund's short duration reduces interest-rate risk and provides a high correlation to immediate inflation changes, but it also leads VTIP to a lower yield and return than its peers.
This fund provides protection against inflation, credit, and interest-rate risk because it only invests in TIPS shorter than five years and is backed by the full faith and credit of the U.S. government. The fund's duration of 2.7 years as of September 2017 was shorter than the average duration of 5.7 years for the inflation-protected bond Morningstar Category that encompasses the broad TIPS market. To illustrate, if the rate curve shifts by 1 percentage point, this fund would lose approximately 2.7% of its value, while the average TIPS fund would decline by 5.7%.
Phillip Yoo does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.