Vanguard is offering investors a way to hedge against future inflation with today’s launch of the Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP), in four share classes, including ETF Shares.
The new fund will strive to track the performance of the Barclays U.S. Treasury Inflation-Protected Securities, a market-weighted index that measures the performance of inflation-protected U.S. Treasury notes that have a remaining maturity of less than five years. TIPS has an average duration of 2.71 years and an average maturity of 2.76 years.
The short-term fund is expected to be a complement to the $44.3 billion Vanguard Inflation-Protected Securities Fund (VIPSX), a broad-market TIPS fund with a longer-term duration, averaging 8.5 years with an average maturity of 9.4 years.
The new fund offers a different risk-return tradeoff than that offered by the existing Inflation-Protected Securities Fund. With its shorter duration, the new fund is expected to have less exposure to interest rate risk, but may post lower total returns than VIPSX.
VTIP’s estimated expense ratios for the four share classes range from a low of 7 basis points for Institutional Class shares to a high of 20 basis point for Investor Class shares. Both the trademarked-Admiral Class Shares and the ETF shares carry an expense ratio of 10 basis points. According to Lipper, Treasury inflation-protected securities funds carry an average expense ratio of 82 basis points, and ETFs carry an average 20 basis points.
Interestingly, Vanguard is charging an additional purchase fee of 25 basis points on all non-ETF shares to help defray the transaction costs of purchasing and using the TIPS index.
Joshua Barrickman and Gemma Wright-Casparius will be co-managers of the fund. Both are members of Vanguard’s Fixed Income Group, which oversees almost $640 billion in assets and will serve as investment advisor to the fund.
“VTIP was developed for investors seeking inflation protection with the potential for less volatility than other inflation hedges, including stocks, longer-term TIPS, gold, and REITs,” said Vanguard’s CIO Gus Sauter.