This episode explores the underperformance of TIPS (Treasury Inflation-Protected Securities) in 2022 and introduces a new ultra-short TIPS fund designed to mitigate the risks associated with traditional TIPS investments. Against the backdrop of soaring inflation in 2022, many investors who sought inflation protection through TIPS experienced losses due to the bond component of TIPS, which is sensitive to interest rate changes. More significantly, the discussion highlights that the rise in real yields overwhelmed the inflation accrual, leading to unexpected losses for investors holding longer-duration TIPS. For instance, the guests explain that even two- to three-year TIPS suffered due to aggressive Fed tightening. The solution presented is an ultra-short TIPS fund, which aims to isolate the inflation protection aspect of TIPS by investing in bonds maturing within a year, minimizing interest rate risk. This product offers a way to preserve purchasing power, similar to a money market fund but with inflation protection, addressing the concerns of investors who were disappointed by the performance of longer-term TIPS in 2022. What this means for investors is a new tool for managing inflation risk, particularly in uncertain economic times characterized by tariff uncertainty and fluctuating inflation expectations.
