Seeking a safe haven from inflation, this year investors have stashed $5.6 billion into the iShares Barclays Treasury Inflation Protected Securities ETF (TIP).
Problem is, this ETF may not be the safe haven they expect.
This is because passively managed ETF’s such as TIP invest in far too predictable a manner.
WSJ: Allianz’s Pacific Investment Management Co., which oversees $840 billion, says that while indexing may work wonders in the stock market, with TIPS it often leads to missed opportunities and hidden costs.
Because index funds calculate benchmark values at end-of-day prices, Pimco contends they are inclined to buy at whatever level is offered when the markets close, allowing other investors to push up prices ahead of time, sometimes as much as 1%.
Similarly, TIPS indexes change their composition in a predictable fashion, allowing other investors to anticipate index funds’ moves, driving up costs for fund investors.
We wonder: How many hedge funds are already taking advantage of this strategy, picking off money from retail investors plowing into TIPS, who think they’re getting an easy, low-cost way to get protected?
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