In this week’s Macro Theme, we review our “Slowing Dragon” theme. We began discuss...
Inflation Protection for Global Investors
02/06/2014 10:00 am EST
If there ever was a time to prepare for inflation, and access such protection at reasonable prices, the time is now, before the globe's behemoth investment institutions crowd out mom and pop investors, suggests Richard Stavros, editor of Survival of the Fittest.
With respect to inflation protected bonds, though TIPS should be a part of every portfolio. However, we believe the SPDR DB International Government Inflation-Protected Bond (WIP) offers greater protection than TIPS.
Founded in 2008, WIP is an exchange traded fund that seeks to provide investment results that correspond generally to the price and yield performance of the DB Global Government ex-US Inflation-Linked Bond Capped Index.
The ETF holds specific types of foreign sovereign bonds that are linked or indexed to an inflation calculation in another country, similar to how TIPS in the US are indexed to the Bureau of Labor Statistics' CPI.
To be included in the Index, bonds must: 1) be capital-indexed and linked to an eligible inflation index; 2) have at least one year remaining to maturity at the Index rebalancing date; 3) have a fixed, step-up or zero notional coupon; and 4) settle on or before the Index rebalancing date.
As of July 30, 2013, the ETF recorded a net asset value (NAV) of $1.16 billion and a low expense ratio of 0.50%.
SPDR DB International Government Inflation-Protected Bond pays out a monthly distribution which amounts to an annual yield of around 3.76%.
Its holdings are linked to inflation measures in countries outside the US. The high yield may signal that inflation is beginning to increase in countries where this ETF holds bonds.
The fund's holdings include government debt from more than 15 countries, including Chile, the United Kingdom, Sweden, Israel, Italy, France, Japan, Poland, and South Africa.
The fund is actively traded and its holdings can change very rapidly and drastically within only a few weeks. The fund's largest bond allocations are in Chile (over 65%), the UK (over 6.5%), and France (over 6%).
More than 70% of the fund's held debt is rated as AAA+ or AAA by ratings agencies such as Moody's, S&P, and Fitch. Nearly 64% of the fund's debt matures in less than one year.
And less than 15% of the debt held by the fund is long-term debt that matures in ten years or longer. The SPDR DB International Government Inflation-Protected Bond is a buy up to $65.
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