iShares' New Ultra-Short TIPS ETF Targets Inflation?Minus The Volatility

BlackRock is set to add to its roster of inflation-protected ETFs with the iShares 0-1 Year TIPS Bond ETF (ICPI) , giving investors a chance to capture CPI-linked adjustments without the bruising rate sensitivity that hit longer-dated TIPS in recent years.

A Cash-Like Inflation Hedge

According to the fund prospectus, ICPI tracks the ICE U.S. Treasury 0-1 Year Inflation-Linked Bond Index, a basket of Treasury Inflation-Protected Securities with maturities of 1 month to 1 year. With the index carrying an effective duration of just 0.48 years, the fund sits at the extreme short end of the TIPS market, where interest-rate swings have historically done far less damage.

That positioning is part of the appeal. The TIPS market delivered an unpleasant lesson in 2022, when soaring inflation failed to translate into positive returns. While CPI jumped 6.5% that year, the broad TIPS index slid 12% as real yields surged, per the fund documents. By contrast, 0-1 year TIPS posted a positive 3% return, a performance gap that ICPI’s mandate effectively tries to replicate.

How The Income Works

The fund distributes monthly, including the inflation adjustment applied to its underlying holdings. Because TIPS principal moves along with CPI, the ETF structure helps fix a long-standing irritation for individual TIPS buyers: phantom income, the taxable inflation adjustment that traditional bondholders don’t actually receive until maturity. ICPI distributes that adjustment as cash each month, matching tax liability with cash flow.

Those payments follow the Treasury’s own lagged CPI schedule-in other words, January inflation feeds into March TIPS accruals and is ultimately distributed by the ETF on April 1-meaning the fund routinely reflects CPI with a built-in two-month delay.

Mechanics Without The Mess

ICPI charges 0.09% and employs representative sampling, owning only a subset of the index-eligible TIPS with at least $300 million outstanding. BlackRock also indicates that the fund may not distribute, or distribute less, during deflationary months, which mirrors the way TIPS principal declines as prices fall.

While inflation is still well above pre-pandemic norms, and rate volatility is still on, ICPI lands in the market as a targeted, low-duration tool for investors who want CPI protection without hitching themselves to the full TIPS curve’s swings.

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