Worldwide inflation is raging, and no-one sees the light in the end of the tunnel. All scenarios are highly contingent on central bank actions and the pace of geopolitical tensions that leads to energy crises – particularly, in Europe. But investors still seek inflation-stripped flow of passive incomes going forward. An in the respect, first what comes to one’s mind is inflation-protected securities.

LTPZ is an index ETF investing in long-term TIPS, with average maturities of 20 years, and average yield of 1.5% plus inflation. The fund has the same characteristics, benefits and shortcomings of TIPS and long-term bonds. This looks especially suitable in the current environment where skyrocketing inflation has led to significant dividend growth for the fund, with LTPZ currently yielding 9.0%. Essentially, yields will remain elevated, most likely even grow, if inflation remains galloping.

PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (LTPZ), is an index ETF investing in long-term treasury inflation-protected securities, or TIPS. LTPZ benefits from increased inflation, but is harmed from increased interest rates. Lower inflation and higher rates would be a particularly negative situation. As said situation seemed somewhat likely, I argued against investing in the fund. One risk materialized, with LTPZ underperforming, more or less as one would expect.

The fund currently yields 9.0%, a massive yield, significantly higher than that of most broad-based asset class index ETFs, and almost fully-covered by underlying generation of income. At current prices, LTPZ should yield around 1.5% plus inflation, so 3.5% if inflation reaches the Federal Reserve target, now apparently unattainable in the foreseeable future, of 2.0%. Expected yields are a bit higher than average, but not significantly so.

Treasuries, including TIPS, are the safest assets in the world, backed by the full faith and credit of the U.S. governments. Treasuries offer investors ultra-safe, dependable, albeit low, interest rate payments and dividends. TIPS have the added benefit that their dividends, capital, and returns, are protected against inflation. This is because their face value and coupon rate payments are indexed to the Consumer Price Index, or CPI, an inflation index, for positive values of said index. In simple terms, TIPS returns are roughly equal to their interest rate plus inflation.