With the Federal Reserve expected to keep interest rates at a near record low, increases in money supply over the past few years to support artificial demand to boost the U.S. economy and excessive borrowing by the Federal government pushing the deficit north of $1 trillion per year, inflation is likely to be inevitable. As a result, iShares recently announced plans to launch a new international sovereign debt fixed-income exchange-traded fund (ETF) that includes debt from the U.S. that’s designed to protect investors from rising prices.
This new ETF is expected to track the BofA Merrill Lynch Global Diversified Inflation-Linked Index, which is a market-value-weighted capped total return index designed to measure the performance of inflation-linked sovereign debt that is publicly issued and denominated in the issuer’s own domestic market and currency. Additionally, the index is rebalanced on the last calendar day of every month and the fund will not invest in any country that has defaulted on its debt or has less than $1 billion in qualifying debt.
Furthermore, the index consist of 167 issues from 17 developed and emerging nations including Australia, Brazil, Canada, Chile, France, Germany, Greece, Israel, Italy, Japan, Mexico, Poland, South Africa, Sweden, Turkey, the United Kingdom and the U.S.
Lastly, the filing states, with the exception of the U.S. Treasury, no issuer can hold greater than a 22.5% share of the underlying index, while no more than 48% of the underlying index can be comprised of issuers other than the U.S. Treasury that individually hold a 5% or greater share of the underlying index.
The only other ETF currently available for accessing international inflation protected bonds is the SPDR DB International Government Inflation-Protected Bond Fund (WIP); however, WIP has no exposure to U.S. debt and is heavily concentrated in the debts of the U.K. and France, making a less diversified global play on inflation than the new iShares fund.
Disclosure: No Positions