UBS launches ETF suite as inflation threat looms

By Sam Shaw

Added 29th November 2016

UBS Asset Management has listed five new exchange-traded funds (ETFs) tracking two benchmark indexes for US Treasury Inflation Protected Securities (Tips).

UBS launches ETF suite as inflation threat looms

Designed to shield against inflation risk, the funds will track the Barclays Tips 1-10 and Barclays 10+ indices and include currency hedged versions in euro, Swiss franc and sterling.

The base products are the UBS ETF Barclays TIPS 1-10 Ucits ETF and the UBS ETF Barclays TIPS 10+ Ucits ETF, providing exposure to TIPS of shorter (one -10 years) and longer (more than 10 years) duration.

The currency-hedged versions will allow clients to invest in US dollar-funded investments while controlling any negative impact of currency movement.

UBS explains the main difference between a nominal and inflation-protected security is the principal amount of a Tips issue is adjusted over time to reflect alterations to the Consumer Price Index (CPI).

The fixed coupon rate for the issue is applied to its principal amount, which will vary over time according to changes to the rate of inflation or deflation.

UBS gives the example of a $1,000 (£802) investment in a newly issued TIPS with a 1% coupon. If inflation grew at 2% over the next year, the face value of the product would be adjusted to $1,020. The annual accrued interest would be $10.20 – or 1% x $1,020.

Andrew Walsh, head of UBS ETF sales UK & Ireland, said: “There is growing sentiment in markets that inflationary pressures may start to rise gain after an extended period of low interest rates and the potential impact of nascent signs of fiscal stimulus from the US and elsewhere.

“With this innovative suite of ETFs our clients our able to protect long-term purchasing power and gain access to an asset class that compounds the real rate of return.”

The TER on the base ETFs is 0.20% while the hedged share class TER is 0.25%.

These latest listings from UBS Asset Management follow its currency-hedged S&P 500 ETF, launched earlier this month.

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