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.