Schwab US TIPS ETF

SCHP

Market cap $14.6B

Pressure is mounting on the Federal Reserve to keep cutting interest rates, and dividend ETFs like Direxion Daily 20+ Year Treasury Bull 3X Shares (NYSEARCA:TMF), iShares Preferred and Income Securities (NASDAQ:PFF), and Schwab US TIPS ETF (NYSEARCA:SCHP) will be the first in line to benefit.

The Schwab U.S. TIPS ETF offers low-cost, diversified exposure to U.S. Treasury Inflation-Protected Securities, providing effective inflation protection for long-term investors. SCHP tracks the Bloomberg U.S. Treasury Inflation-Linked Bond Index, maintains high liquidity, and charges a minimal 0.03% expense ratio, making it an efficient inflation hedge. The ETF has outperformed its Morningstar category over 3-, 5-, and 10-year periods due to low fees and precise index replication, with a current 7% YTD return.

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SCHP offers low-cost, broad exposure to US TIPS, tracking the Bloomberg US Treasury Inflation-Linked Bond Index with high efficiency. The ETF's value is highly sensitive to real interest rate movements; a +100 bps rise in real rates could reduce value by about 5.8%. Current 10-year breakeven inflation expectations are elevated, limiting near-term upside unless new inflation surprises emerge.

Schwab U.S. TIPS ETF has lower fees compared to other similar products. SCHP has outperformed both peer TIPS funds and nominal Treasury ETFs since inception, driven by lower fees and inflation protection. Fiscal and monetary policy trends are likely to remain supportive of inflation, making TIPS exposure attractive for investors.

Blending TIPS with intermediate-term treasury bonds enhances risk-adjusted returns, offering a Sharpe ratio of 0.46, better than holding each asset class alone. When paired with equities, a 50/50 ITT/US portfolio yields the highest Sharpe ratio of 0.66, outperforming other combinations. SCHP is my preferred TIPS fund due to its low 0.03% expense ratio, diversified holdings, and high liquidity with $11.45B AUM.

WESTLAKE, Texas--(BUSINESS WIRE)--Schwab Asset Management®, the asset management arm of The Charles Schwab Corporation, today announced forward share splits on 20 Schwab ETFs. Forward ETF share splits increase the number of shares outstanding and decrease the Net Asset Value (NAV) per share. The share splits will not change the total value of a shareholder's investment. The ETF share splits will apply to shareholders of record as of the close of US markets on October 9, 2024, payable after the.

The Schwab U.S. TIPS ETF (SCHP) owns a portfolio of Treasury Inflation-Protected Securities. With the Fed cutting interest rates while inflation remains above target, SCHP should continue to see dual tailwinds from higher principal adjustments and duration returns. Paradoxically, the key risk to monitor is inflation. If inflation surges, the Fed may have to restart rate hikes, which could lead to duration losses for the SCHP.

SCHP holds a portfolio of long-duration treasury inflation protected securities ("TIPS"). Elevated inflation should boost principal adjustments to SCHP. But with the Fed likely to stand pat unless inflation reaccelerates out of control, so further NAV declines may be limited. On the other hand, if the economy weakens, the Fed appears ready to lower interest rates to support jobs, which should boost NAV for SCHP.

We think U.S. bond markets are underestimating how difficult it might be to fight inflation. We'll have confirmation one way or another starting next Tuesday. Schwab U.S. TIPS ETF™ contains TIPS, and an effective duration of around 7 years, where the implied expectations for inflation are too low and therefore the SCHP ETF is attractive. However, the duration and sensitivity to changes in real rate assumptions is a reason why we would opine that additional caution should be taken in addition to caution around macro.