European fixed income ETF provider Tabula Investment Management Limited has launched the first ETF in the market that provides exposure to both realised and expected inflation in a single index. The Tabula US Enhanced Inflation UCITS ETF (TINF) combines a TIPS (Treasury Inflation-Protected Securities) portfolio with exposure to US inflation expectations (breakevens).
“ETFs are a natural choice for inflation exposure”, says Tabula CEO Michael John Lytle. “Inflation is an escalating concern among institutional investors, jumping up in their focus list over the last three months. Existing inflation ETFs force investors to choose between realised inflation and inflation expectations. For many investors, both are important measures and a more efficient solution is to combine them, which is what we have done with the Tabula US Enhanced Inflation UCITS ETF.”
Are we heading for a pandemic-driven collapse in consumer demand?
Economists agree that the pandemic-driven collapse in consumer demand will have a profound impact on inflation, as will central bank easing combined with fiscal stimulus. The US Federal Reserve Bank announced in August that its inflation target would now reflect a catch-up for having missed its 2% target for most of the past decade.
“Forecasts of where inflation might go have rarely been as diverse as they are today. The economic consequences of the COVID-19 pandemic, and policy reactions to it, have led simultaneously to forecasts of deflation, as well as forecasts of inflation rates moving sharply higher”, says Jason Smith, CIO of Tabula. “As the decade-long trend of stable and limited inflation rates is likely coming to an end, investors need flexible and convenient tools to manage their inflation exposure.”
The Bloomberg Barclays US Enhanced Inflation Index
Tabula has worked with Bloomberg to create the new Bloomberg Barclays US Enhanced Inflation Index. Historic analysis of the index shows that it can provide positive performance when inflation is rising.
The Tabula US Enhanced Inflation UCITS ETF (USD) EUR-Hedged share class was listed on Borsa Italiana on 27 October with ticker TINE and has an ongoing charge of 0.34%. The USD share class of the ETF will be listed on the London Stock Exchange on 3 November with ticker TINF and has an ongoing charge of 0.29%.
Tabula has worked with Bloomberg to provide realised and expected inflation in a single index. The new Bloomberg Barclays US Enhanced Inflation Index delivers realised US inflation via exposure to US Treasury Inflation-Protected Securities (TIPS) across a wide range of maturities. In addition, it takes exposure to 7-10y US TIPS, in combination with a short position in 7-10y US Treasuries – this provides reactive but liquid exposure to medium-term inflation expectations. The Index is calculated daily and rebalanced monthly.
