For example, he says, the iShares TIPS Bond ETF (TIP), which covers the breadth of the TIPS market, is down 0.97 percent year-to-date. The Bloomberg Barclays US Aggregate Bond Index is down 1.77 percent year-to-date.
RINF works as a satellite holding in a portfolio’s fixed-income allocation or as an alternative asset in a total portfolio, offering some diversification from stocks and bonds, Hyman says.
He adds that this fund does best when inflation expectations are rising, not necessarily when inflation rises, which is why it doesn’t reflect the CPI or other inflation measures.
“This is like a forward curve of inflation expectations,” he says.
RINF has performed well this year because expectations for inflation have risen, even as inflation has picked up. Potential ETF buyers should not assume that just because inflation is rising that expectations for higher inflation will also continue to rise. If expectations are for less inflation, the fund will falter.
“This is where you need to be careful,” Hyman says. “You could get into a situation where current levels of realized inflation are heating up and you expect dramatically tightening monetary and/or fiscal policy, such that you think fact that inflation is going to come down X number of years from now,”
One real-life example is when the Fed was hiking interest rates in the late 1970s, but inflation was still rising.
“In 1979 or 1980, inflation was still high, but expectations for future inflation, were probably starting to come down. That’s an extreme sort of scenario,” Hyman says.