State Street Adds Inflation Protected Bond ETF

March 19, 2008

SAN DIEGO (ETFguide.com) - Attacking inflation just got easier. 

Today, State Street Global Advisors (SSgA) launched the SPDR DB International Government Inflation-Protected Bond ETF (Ticker: WIP) on the American Stock Exchange.

The exchange-traded fund (ETF) tracks the DB Global Government ex-US Inflation-Linked Bond Capped Index, which includes 120 inflation-indexed bonds from 18 developed and emerging countries outside of the US. 

The bonds in the fund have an average credit quality of Aa1 and average duration life of 9.06 years.

According to the prospectus, the fund's annual expense ratio is 0.50 percent.

To be included in the index, bonds must be capital-indexed and linked to an eligible inflation index; have at least one year remaining to maturity at the index rebalancing date; have a fixed, step-up, or zero notional coupon; and settle on or before the index rebalancing date. 

Over the past 12 months consumer price inflation (CPI) has averaged 4.3 percent.

But some observers argue that CPI understates true inflation because food and energy prices, which have been rising, are overlooked from the calculated figures.

“What people purchase every day is precisely what is excluded from the core measure,” said Gerald P. O’Driscoll Jr. a senior fellow at the Cato Institute.  

“Demand for international inflation-linked bond exposure has increased significantly in recent years as investors look to improve the risk-return profile of their portfolios by hedging against inflation and US dollar exposure while improving diversification,” said James Ross, senior managing director at State Street.

Aram Flores, Managing Director and Head of Index Research for the Americas, commented, “The DB Global Government ex-US Inflation-Linked Bond Capped Index was developed to serve as a benchmark for inflation-linked bonds, a market that has experienced strong growth in recent years. We are pleased that State Street Global Advisors has selected this innovative index to launch a SPDR as the first international inflation-linked bond ETF.”

Exchange-traded funds are low cost index funds that trade like stocks.

SSgA is the investment management arm of State Street Corporation (NYSE: STT). As of February 29th, 2008, the firm managed more than $141 billion in ETF assets worldwide.