Refinitiv Lipper Chart of the Week: Investors Seek Out Inflation Protected Bond Funds

Funds in Refinitiv Lipper’s inflation protected bond funds (TIPS) classification took in $271 million of net new money for the fund-flows week ended Wednesday, July 29. This was the sixth consecutive weekly net positive flows for the group. During this time period, the TIPS group recorded its two best weekly net inflows ever (the inflation protected bond funds classification was created in 2002), with increases of $1.9 billion and $1.5 billion, respectively, for the fund-flows weeks of June 24 and July 1. Fund investors started to come back to TIPS funds in mid-Q2 as the group has posted net positive flows in 11 out of 13 weeks since the start of May. This streak comes on the heels of its second-worst quarterly net outflows ever (-$10.2 billion) driven by a COVID-19 induced slump in oil prices.

As the coronavirus shut down the global economy in Q1, the demand for oil cratered as did its price. The price for Brent crude (the global benchmark for oil) retreated 66.5% during the first quarter. Oil prices are an important indicator for inflation protected bond funds as a rise in oil prices creates inflationary pressures in the economy, with the inverse also being true. The price of Brent crude has recovered since the end of Q1, appreciating 88.8% as of the end of July. The lion’s share of this price appreciation can be traced back to the start of May, which aligns with the fund flows rally for TIPS funds.

Two Vanguard Group products have accounted for a significant percentage of the total net inflows for TIPS funds since the end of Q2 as the Vanguard Short-Term Inflation-Protected Securities Fund and Vanguard Inflation-Protected Securities Fund have grown their coffers by $3.1 billion and $601 million during this time period. Other major individual contributors include the Schwab US TIPS ETF (SCHP, +$1.3 billion), Fidelity Inflation-Protected Bond Index Fund (+$636 million), and American Funds Inflation Linked Bond Fund (+$554 million).