PIMCO 1-5 Year US TIPS Index ETFSTPZ

Morningstar Rating

ETF Research and Analysis

by Abby Woodham

Suitability
PIMCO 1-5 Year US TIPS Index ETF STPZ tracks a cap-weighted index of Treasury Inflation-Protected Securities that have one to five years remaining until maturity. Although this ETF yields less than broader TIPS funds do, Read more

Bull Case

TIPS let investors hedge against unexpected inflation: the possibility that the future rate of inflation is higher than the market expects.

Because STPZ buys the short end of the TIPS maturity curve, it is more correlated with inflation than funds that buy the entire spectrum of TIPS.

Individual TIPS are taxed each year on their inflation adjustment, even though investors don't receive most of the adjustment until maturity. STPZ pays out the adjustment. Read more

Bear Case

Although STPZ is more correlated with inflation than broad funds, it is still an imperfect inflation hedge.

If the market overestimates the future rate of inflation, Treasuries will outperform TIPS.

If deflation occurs, the fund will distribute the inflation-adjusted decrease, offsetting the usual coupon payment. STPZ will suspend distributions until the decrease is fully distributed. Read more