Tuesday, November 10, 2009

TIPS: A Good Thing!

I first mentioned Treasury Inflation Protected Securities or TIPS in an article on August 28 when I noted that "the TIP's ETF has "broken out" as it appears to be attracting the interest of investors." Since that time, the i-Shares Lehman TIPS Bond Fund (symbol: TIP) or TIP's ETF is up 3%.

Figure 1 is a daily chart of the i-Shares Lehman TIPS Bond Fund (symbol: TIP) with volume bars in the middle panel and the on balance volume indicator (with a 40 bar moving average) in the lower panel. On Monday, price hit a new closing high for the move, and the OBV indicator is leading price higher. This is good.

Figure 1. TIP/ daily

So you say, "So, what is the big deal?". The S&P Depository Receipts (symbol: SPY) is up 6% over the same time frame.

As it turns out, SPY is twice as volatile as TIP, and in the current market environment, my money management strategy would be to hold a position in TIP that is twice the cash value of the SPY. So in essence, with this position in TIP, I have not underperformed.

Furthermore and to the benefit of my portfolio, TIP is poorly correlated with the SPY on 156 week, 52 week and 26 week time frames. A position in TIP has not hurt my portfolio performance, and in all likelihood, it has decreased the volatility. This is a good thing!

Figure 2 is a monthly chart of the i-Shares Lehman TIPS Bond Fund (symbol: TIP). A monthly close below the pivot at 102.75 would be reason enough to abandon the notion of higher TIPS. TIP looks like it has the potential to get to $110.

Figure 2. TIP/ monthly

To find other articles that I have written on TIPS, use the search function in the right hand column of this blog. Type the word "TIPS" into the box.


Dacian said...


Both your calls on TIPS and oil (but gold as well) imply a much lower dollar. That is scary imo; not only people are loosing their jobs and their houses, but now they started to save, they see their savings ripped off (15% this year) by this "strong dollar policy"...

Thanks for the post!

Guy M. Lerner said...


Funny thing....I have written 5 or 6 articles on TIPS in about 3 months.....I think this is the first comment anyone has had on one of these articles...I wonder what that says??

dacian said...

Guy, having a comment (or not) means nothing imo. You tell me what that means!

Not having comments doesn't mean people aren't aware of what you're saying. Probably some even bought TIPS based on your 1st post; I didn't and I won't for now (I never traded bonds).

Guy M. Lerner said...


I was just making an observation that the lack of comments (to me) means lack of interest amongst the readership; that is all. Kind of a contrarian type of comment; no interest in TIPS yet TIPs have performed in line with stocks on a relative basis