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The COVID-19 vaccines and their availability have raised the prospect of inflation as we move ahead into the next year since these will lead to faster-than-expected economic recovery. Notably, the 5-year TIPS/Treasury breakeven rate — a proxy for inflation expectations measured by the yield difference in linkers and regular Treasuries — surged to the highest level since March 2019 (see: all the Inflation-Protected Bond ETFs here).
The United States has started the largest-ever immunization with the rollout of the COVID-19 vaccine developed by Pfizer (PFE - Free Report) in collaboration with a German biotechnology company, BioNTech BNTX. This is a historic development to counter the worst pandemic in over 100 years. About 3 million doses of the Pfizer/BioNTech vaccine have been delivered to health workers and nursing home residents for the first shot. The FDA authorized the emergency use in people aged 16 and older last week.
Another company — Moderna (MRNA - Free Report) — is expected to receive FDA approval by the end of this week. The company is expected to ship vaccines next week if approved. Other like AstraZeneca (AZN - Free Report) , Sanofi (SNY - Free Report) , GlaxoSmithKline (GSK - Free Report) , Merck (MRK - Free Report) and Johnson & Johnson (JNJ - Free Report) are also developing a vaccine.
The vaccine optimism along with rise in some raw materials prices such as copper and lumber will lift inflation. The inflation rate could reach or surpass the Federal Reserve’s 2% target in some months. “A resurgence in global growth in 2021, along with the Federal Reserve’s increased tolerance for inflation, should fuel price pressures and favor securities that protect against cost-of-living increases,” according to Mizuho International Plc’s Peter Chatwell (read: Fed Targets "Average Inflation" of 2%: ETF Strategies to Play).
The expectation of an uptick in inflation has led investors’ flocking to Treasury Inflation Protected Securities (TIPS) ETFs. The ultra-popular iShares TIPS Bond ETF (TIP - Free Report) pulled in about $1.1 billion capital over the past six days, according to data compiled by Bloomberg. This marks the strongest inflow since early March, before the coronavirus upended financial markets and forced global lockdowns, crushing inflation expectations.
Other popular ETFs — Schwab U.S. TIPS ETF (SCHP - Free Report) , Vanguard Short-Term Inflation-Protected Securities ETF (VTIP - Free Report) , iShares 0-5 Year TIPS Bond ETF (STIP - Free Report) and SPDR Portfolio TIPS ETF (SPIP - Free Report) — also look compelling investments to combat inflationary pressure in 2021.
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TIPS ETFs to Buy for 2021 on Inflation Trade
The COVID-19 vaccines and their availability have raised the prospect of inflation as we move ahead into the next year since these will lead to faster-than-expected economic recovery. Notably, the 5-year TIPS/Treasury breakeven rate — a proxy for inflation expectations measured by the yield difference in linkers and regular Treasuries — surged to the highest level since March 2019 (see: all the Inflation-Protected Bond ETFs here).
The United States has started the largest-ever immunization with the rollout of the COVID-19 vaccine developed by Pfizer (PFE - Free Report) in collaboration with a German biotechnology company, BioNTech BNTX. This is a historic development to counter the worst pandemic in over 100 years. About 3 million doses of the Pfizer/BioNTech vaccine have been delivered to health workers and nursing home residents for the first shot. The FDA authorized the emergency use in people aged 16 and older last week.
Another company — Moderna (MRNA - Free Report) — is expected to receive FDA approval by the end of this week. The company is expected to ship vaccines next week if approved. Other like AstraZeneca (AZN - Free Report) , Sanofi (SNY - Free Report) , GlaxoSmithKline (GSK - Free Report) , Merck (MRK - Free Report) and Johnson & Johnson (JNJ - Free Report) are also developing a vaccine.
The vaccine optimism along with rise in some raw materials prices such as copper and lumber will lift inflation. The inflation rate could reach or surpass the Federal Reserve’s 2% target in some months. “A resurgence in global growth in 2021, along with the Federal Reserve’s increased tolerance for inflation, should fuel price pressures and favor securities that protect against cost-of-living increases,” according to Mizuho International Plc’s Peter Chatwell (read: Fed Targets "Average Inflation" of 2%: ETF Strategies to Play).
The expectation of an uptick in inflation has led investors’ flocking to Treasury Inflation Protected Securities (TIPS) ETFs. The ultra-popular iShares TIPS Bond ETF (TIP - Free Report) pulled in about $1.1 billion capital over the past six days, according to data compiled by Bloomberg. This marks the strongest inflow since early March, before the coronavirus upended financial markets and forced global lockdowns, crushing inflation expectations.
Other popular ETFs — Schwab U.S. TIPS ETF (SCHP - Free Report) , Vanguard Short-Term Inflation-Protected Securities ETF (VTIP - Free Report) , iShares 0-5 Year TIPS Bond ETF (STIP - Free Report) and SPDR Portfolio TIPS ETF (SPIP - Free Report) — also look compelling investments to combat inflationary pressure in 2021.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>