TIPS as an Asset Class

TLDR

Treasury Inflation‑Protection Securities (TIPS) are presented as a distinct asset class with unique characteristics, providing a direct hedge against CPI inflation and exhibiting low correlation with traditional assets. The study shows that TIPS deliver substantial diversification benefits, supporting their inclusion as a viable long‑term asset‑allocation component.

Abstract

In the design of investment portfolios, the authors maintain that Treasury Inflation Protection Securities should be evaluated as a separate and distinct asset class. These securities have unique characteristics that are not directly available through other investment vehicles. Their most significant benefit lies in the fact that they provide a direct hedge against one specific measure of inflation (i.e., the non-seasonally adjusted Consumer Price Index for all urban consumers, which allows investors to maintain real purchasing power and hedge against future nominal increases in the overall domestic price level. TIPS may also appeal to a broader audience by virtue of their relatively low correlation with other traditional asset classes. The authors demonstrate that TIPS offer potentially significant diversification benefits, establishing them as a viable asset class in a long-term asset allocation policy.