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Q – I would like to know what United States TIPS funds (Treasury Inflation Protected Securities) I can buy in Canada. I am a Canadian citizen, resident in Canada. With U.S. interest rates rising, growing GDP, good corporate profits, low unemployment, and expected wage increases, more commentators are raising the possibility of increasing inflation. At present TIPS prices are low because most people still do not believe in the prospect of inflation. I do believe in the return of inflation and this could be a good time to buy TIPS funds while prices are still low. – Chris C.
A – I don’t know of any Canadian companies that invests exclusively in TIPS, but there is nothing to prevent you from buying in New York. The largest fund of this type is the iShares TIPS Bond ETF (NYSE: TIP), which has about $24 billion in assets. It invests in a portfolio of inflation-protected U.S. Treasury bonds with an effective duration of 7.63 years. As of the end of September, the fund had generated a loss of 2.1% year to date for 2018. The 5-year average annual compounded rate of return to Sept. 30 was 1.0%, so don’t expect to get rich here. Distributions are paid monthly and can vary significantly.
There are a number of bond funds and ETFs sold here that use Canadian inflation-protected securities. As you might expect, returns were weak in the low-inflation environment of recent years, but they have improved recently. The one-year rate of return for the category is a respectable 4.2% (to Sept. 30). The 10-year average, shows an average annual compounded rate of return of 2.9%.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
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The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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