ITIP ETF: How risky is it?

I have been following the new iShares International Inflation ETF (ITIP) for a few weeks now, looking for a possible opportunity to buy in. I had arbitrarily set a price of $49.50, and it hasn’t hit that price yet. This would be a small investment.

I wrote about ITIP when it was introduced in late May, and I noted then that the fund was appealing because it invests in government inflation-linked bonds, excluding the U.S. So it would complement my holdings in U.S. Treasury Inflation-Protected Securities. (I don’t own any TIPS mutual funds or ETFs at the moment.)

I noted at the time two risks 1) among ITIP holdings are Italian, Greek and Turkish bonds, more risky than U.S. holdings, and 2) this is a lightly traded ETF.

How lightly traded? Here’s the rather amazing ITIP chart for last week, June 20-24:

zero volumeSo in the midst of a screaming Greek debt crisis, this ETF, which includes Greek bonds, trades at zero volume? The Greek bonds, by the way, make up 2.78% of the funds holdings and are rated Caa1 / CCC.

Also, on Friday it was priced at $49.91 (it didn’t trade), 1.2% above its net asset value of $49.29. I think a better buying point will be below $49.

Here are the fund’s core holdings:

BRAZIL, FEDERATIVE R 7.15% 5/15/2013 Baa2 /NR
FRANCE (GOVERNMENT) 5.78% 7/25/2022 Aaa /NR
ITALY, REPUBLIC OF ( 5.67% 9/15/2016 NR /NR
FRANCE (GOVERNMENT) 4.33% 7/25/2016 Aaa /NR
UNITED KINGDOM OF GR 4.30% 7/22/2030 Aaa /AAA
GERMANY (GOVERNMENT 3.92% 4/15/2016 Aaa /AAA
AUSTRALIA, COMMONWEA 3.22% 8/20/2020 Aaa /NR
TURKEY, REPUBLIC OF 3.11% 10/1/2014 NR /NR
UNITED KINGDOM OF GR 3.08% 3/22/2040 Aaa /AAA
CANADA (GOVERNMENT) 3.06% 12/1/2026 TSY /TSY
Total 43.62%

About Tipswatch

Author of blog, David Enna is a long-time journalist based in Charlotte, N.C. A past winner of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website.
This entry was posted in International bonds, Investing in TIPS. Bookmark the permalink.

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