Pimco 1-5 Year U.S. TIPS Index ETF STPZ sensibly constructs its portfolio of short-term U.S. Treasury Inflation-Protected Securities and pairs it with a reasonably low fee. However, there are cheaper alternatives.

The fund tracks the ICE BofA 1-5 Year U.S. Inflation-Linked Treasury Index, which includes TIPS between one to five years until maturity. The fund weights qualifying bonds by their market value, which promotes low turnover and mitigates transaction costs. This is a sound approach because the TIPS market is liquid and does a good job of pricing these bonds.

TIPS offer a direct hedge against inflation because their principal is linked to the Consumer Price Index, which tracks the prices paid on goods by U.S. consumers. The value of the TIPS' principal is adjusted higher when the CPI rises, resulting in higher coupon payments. A TIPS fund would likely outperform a Treasuries fund with a similar maturity when inflation exceeds expectations. When inflation is lower than expected, the Treasuries fund would likely outperform TIPS because the market's expectation for inflation was already baked into its price.

Credit risk is nearly nonexistent as TIPS are backed by the U.S. government. But TIPS are still exposed to interest-rate risk. Longer-term TIPS have higher exposure to interest-rate risks than shorter-term ones. This fund selects securities with one to five years to maturity, resulting in less exposure to interest-rate risk than its category peers that travel further along the curve. As of September 2023, its average effective duration was 2.84 years, which was two and a half years lower than the category average. 

Targeting short-term TIPS strengthens the fund's sensitivity to inflation because short-term interest rates are more correlated with inflation than long-term rates, and the inflation protection embedded in the fund's performance isn't overshadowed by interest-rate risk. This provides investors with better inflation protection and lowers the fund's volatility. 

TIPS are a narrow and homogeneous sector of the bond market with limited potential for funds to differentiate their performance. Therefore, fees are a critical factor for investors to consider. This fund's 0.20% expense ratio is in the cheapest quintile, giving the fund a lower hurdle to keep pace with category peers.

Analyst Rating

Effective inflation protection at a reasonable cost.

Associate Analyst

Mo'ath Almahasneh

Tapping into the short-term TIPS market provides investors with purer inflation protection than peers that carry more interest-rate risk. Market-value-weighting is a solid option for the highly liquid Treasury market. It earns a High Process Pillar rating.  

The fund tracks the ICE BofA 1-5 Year U.S. Inflation-Linked Treasury Index, which includes U.S. TIPS with maturities between one and five years and a minimum of $1 billion outstanding. Qualifying issues are weighted by market value. The index is rebalanced monthly and intramonth cash flows are reinvested daily.

High

Process

Pimco's highly experienced and well-equipped fixed-income team merits an Above Average Process rating.

Matthew Dorsten, Tanuj Dora, and Daniel He are the named portfolio managers on this fund. Dora and He replaced Graham Rennison as named portfolio managers in June 2021. Despite the recent change, the portfolio management team has delivered tight index tracking thanks to the automated processes.

The portfolio managers are supported by Pimco's trade assistance group, a team consisting of 30 individuals who function like junior portfolio managers and support the named portfolio managers. They evaluate risk metrics and identify trades for execution. All trades are executed by the specialty trading desk, a team of traders located globally that are split into smaller teams based on their market specialty.

Pimco's automated systems and propriety tools assist its portfolio managers in assessing risk metrics, evaluating the impact a trade would have on a portfolio, and reviewing the attribution of a realized profit or loss. This enables scalability and diminishes the impact of portfolio manager turnover. Portfolio managers' compensation is not tied to tracking error but is based on a more holistic approach.

Above Average

People

Some concerns notwithstanding, Pimco's massive resources--both capital and human--and its laser ‎focus on excellence merit an Above Average Parent rating.‎
True, Pimco could be better on pricing. Shareholders, particularly in Europe, haven't enjoyed the ‎economies of scale that they could given Pimco's massive asset base. The firm, however, believes its ‎pricing is fair based on what it consistently delivers for investors, and it's hard to argue that's not the ‎case.‎
Pimco has generally enjoyed great success with its intense working culture, even if departures are a ‎byproduct of that intensity and can sometimes dim the near-term outlook on strategies. Yet, more ‎often than not, Pimco draws on its legion of skilled people and positions the next generation to ‎thrive.
CIO Dan Ivascyn and CEO Manny Roman ‎represent that next generation and have built on the organizational strengths they inherited. An experienced and critical-thinking investor, ‎Ivascyn has sought to curate an elite staff and capable investment culture since he assumed his ‎current role in 2014 and since Roman joined him in 2016. They have significantly grown the firm's pool ‎of investment professionals and supported them by spending massively on technology and ‎technologists to spur persistent outperformance while keeping risk in check. There may be a few others in Pimco's league, but very few.‎

Parent

PIMCO 1-5 Year US TIPS ETF

STPZ tracks a market-value-weighted index of short-term US Treasury Inflation Protected Securities.

PIMCO 15+ Year US TIPS ETF

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I'm not even retired and I've been buying long-term inflation-protected U.S. Treasury bonds in my 401(k) with both hands.

These bonds, perfect for retirees, are paying twice their historic average

US inflation rates reached 40-year highs in June 2022, prompting investors to move into Treasury Inflation Protected Securities (TIPS) funds. The article reviews two such ETFs: PIMCO 1-5 Year U.S. TIPS Index ETF and PIMCO 15+ Year U.S. TIPS Index ETF.  TIPS are also compared against other inflation hedges. With High-Yield Corporates outperforming TIPS since 2001 and stocks providing higher returns long-term, I give both STPZ and LTPZ Sell ratings.

Short Or Long, TIPS ETFs Are A Bust

STPZ: TIPS Close To A Buy Zone, At Much Higher Yields Than Before.

STPZ: TIPS Close To A Buy Zone, At Much Higher Yields Than Before

The PIMCO 1-5 Year U.S. TIPS Index ETF (STPZ) invests in the short-term segment of the US TIPS market. This was the place to be as rates climbed. PIMCO also offers an ETF that covers the full maturity spectrum (TIPZ) and one focused on the long maturity part (LTPZ). Some review of all three is provided.

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News for PIMCO 1-5 Year US TIPS ETF ETF (STPZ)