iShares TIPS Bond ETF

TIP

Market cap $13.8B

VTIP invests in short-term inflation-protected treasuries, or TIPs. At current inflation rates, VTIP should deliver 3.8% in returns for shareholders, slightly more than comparable treasuries and t-bills. VTIP is a buy, and seems like a particularly interesting investment to more risk-averse, conservative investors.

If you are an investor who is securing profits and is buying up dividend ETFs to weather a possible downturn instead, it's not a bad idea to look back at the past and see which ones have outperformed.

Investors who are planning for long-term income often want more than just a high headline yield.

Though inflation has improved, it remains one of the most significant threats to an investor's accumulation of wealth. Combined with stock market volatility and broader economic uncertainty, and investors find themselves in a risky environment.

TIP is a tactical hedge with intermediate duration in times of uncertainty about the real risk premium in the bond market. TIP invests in TIPS through monthly rebalancing replication of the ICE U.S. Treasury Inflation Linked Bond Index. When the BEI rises, TIP tends to maintain a positive anchor in terms of return and remain competitive compared to the nominal yield of Treasuries.

The iShares TIPS Bond ETF offers exposure to U.S. Treasury Inflation-Protected Securities, providing a hedge against inflation and attractive real carry. TIP's performance is driven by real yields and inflation expectations, with current real yields near decade highs and breakevens stable around 2.2–2.4%. Market signals suggest inflation expectations remain anchored, making TIP sensitive to real rate movements and cyclical shifts rather than long-term inflation regime changes.

Long-term U.S. treasuries were pushed lower Tuesday as the ouster of Federal Reserve Gov. Lisa Cook by President Donald Trump fueled uncertainty regarding the independence of the central bank and monetary policy direction.

The bond market looks increasingly focused on slowing economic growth vs. tariff inflation.

I'm slightly bullish on TIP for the rest of 2025, as Fed policy shifts should lower real rates and reduce liquidity impacts of Fed tightening. TIP benefits from dovish Fed moves, but rising inflation expectations and bank and Treasury liquidity strains could undermine stability beyond 2025. A surge in Treasury issuance and low bank liquidity may force the Fed to resume quantitative easing, boosting TIP but destabilizing the dollar and promoting higher long-term inflation.

STIP delivered close to a 9% gain since one year ago, surpassing my 5% total return prediction. The current setup offers an asymmetric opportunity for TIPS to profit from a higher-than-expected inflation outlook and monetary policy easing. I will maintain my hold rating on STIP shares due to the 8% return prospects in the coming 12-month horizon.