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ETF Specialist

A Gold-Rated Fund for Broad TIPS Exposure

The best TIPS fund is one that is cheap and that effectively tracks a benchmark that is widely representative of the TIPS market. This fund checks all the boxes.

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Treasury Inflation-Protected Securities are bonds issued by the U.S. Treasury Department that have a principal amount that adjusts to reflect observed changes in inflation, thereby protecting investors from the erosion of their purchasing power when inflation exceeds expectations. Nominal Treasury bonds protect against inflation to the extent their yield reflects an inflation risk premium, but their real returns can suffer if inflation runs hotter than expected. A diversified TIPS fund can help protect investors from unexpected inflation.

Schwab U.S. TIPS ETF (SCHP) is a good choice for exposure to U.S. Treasury Inflation-Linked Bonds. This strategy is tough for active managers to beat because there is limited room for them to recoup their fees without taking additional risk. This fund maintains a cost advantage over most its peers and earns a Morningstar Analyst Rating of Gold. The fund’s prospectus net expense ratio (0.05%) is as cheap as it gets, while its tracking error (0.04 from January 2017 through December 2019) is as low as it gets.  

Neal Kosciulek does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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