Shorting Inflation Protection with TPS

February 11, 2011 by  
Filed under Commentary, ETF IPOs (New ETFs)

ProShares on Thursday (2/10/11) introduced the first ETF to track the inverse performance of TIPS – Treasury Inflation Protected Securities.  ProShares UltraShort TIPS (TPS) seeks daily investment results that correspond to twice (200%) the inverse (opposite) of the daily performance of the Barclays Capital U.S. Treasury Inflation Protected Securities Index Series-L.

TPS is designed for investors looking to hedge against a decline in TIPS or potentially benefit from a downturn in the index.  It is not an out-and-out bet on deflation.  Investors that hold TIPS to maturity receive income plus an adjustment to the principal for increases in the CPI.  However, they do not lose capital if the CPI were to decrease during the term of the security.  In other words, TIPS provide inflation protection without a deflation penalty.  By the same token, inverse TIPS are a deflation play only to a limited extent.

The 0.95% expense ratio may be reduced by interest income earned on cash and financial instruments since the fund will get its desired exposure with leveraged swaps while maintaining a large cash position.

Additional information is available in the press release, overview, and prospectus.  Potential investors need to understand the impact of -2x leverage with daily reset that TPS uses.  The ProShares website has an informative piece on The Universal Effects of Compounding and Leveraged Funds.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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