Any TIPS to manage inflation?
We look at whether TIPS (Treasury Inflation Protected Securities) deserve a greater role within UK defined benefit (DB) schemes’ portfolios.
For all schemes, TIPS offer a potentially diversifying source of extra return if you believe markets may be mispriced due to pension funds’ demand for UK inflation-linked bonds.
In this piece we find that TIPS offer potentially attractive returns compared with UK inflation-linked bonds. We also see how the rise of consumer price index (CPI)-linked liabilities presents a challenge to conventional assumptions about inflation hedging a DB scheme, and how TIPS could help reduce risk as well as boost returns.