breakfastinbed wrote: Sat Sep 27, 2025 1:05 pm
I do not know how to backtest a simulated TIPS ladder, but I’d assume it would’ve not performed like this: https://testfol.io/?s=avHuFYgJrCy. Perhaps it would have, but again, my point is I believe that based on the language by which TIPS are recommended on this site (not by you necessarily, but others), potential naïve investors would not expect a product that would underperform inflation over an extended period of time, regardless of interest rates.
So I think this community does sometimes have a problem where some people basically take the attitude that bond pricing doesn’t matter when it comes to what you should expect bonds to do.
This is relevant for the following reason:
At the beginning of the period you tested, real rates were negative for short-to-medium TIPS, and very close to 0 for long-term TIPS. As a result, something like a 13-year TIPS ladder in 2012 would be priced to have a negative real yield as well. Just using the 5-year as a proxy, something like -0.77% real. You have SCHP at -0.57% real, so that is entirely consistent with what you would likely have gotten with a 13.71-year TIPS ladder you bought in January of 2012.
The important thing to understand about this is it didn’t happen because of the real rate increase. It happened because of the high prices of TIPS at the time.
The other important thing to understand is the exact same pricing applied to nominal Treasuries at the time, but the difference is they had no unexpected inflation protection. I think if you backtested VGIT, for example, over the same period, you would get more like -2.4% real. Cumulative, SCHP/TIPS ladder would have outperformed VGIT/nominals ladder something on the order of 17%. Again with room for error of not quite comparing the same bond mix, this is the expected difference based on cumulative unexpected inflation since then.
So SCHP/TIPS ladder bought in January 2012 “worked” in the sense they provided protection against unexpected inflation in the way VTIP/nominal ladder bought at the same time did not.
But they did NOT provide “protection” against buying at such high prices. That is what it is, but no less so for nominals.
So guaranteed real rate? Yes, within a suitable definition of “guaranteed”. Guaranteed POSITIVE real rate? No, that depends on pricing.
But it was a common mistake around here in years like 2012, or 2020, to think high pricing and negative real yields applied to TIPS, but not nominal Treasuries.
breakfastinbed wrote: Sat Sep 27, 2025 1:05 pm
Shouldn’t a TIPS ETF have outperformed a muni ETF of similar duration?
So it gets complicated when you start comparing Treasuries to non-Treasuries as you are adding different moving parts. Like, munis in particular have their own risks and that is going to add components of return, and their “duration” can be tricky too. And then I believe the fund you identified is an active fund as well, so that is even more stuff that is unrelated to this particular issue.
So the first thing I would look for is if this fund outperformed a fund like VGIT as well. If so, that has nothing to do with the inflation protection part of things, it is something about munis versus Treasuries generally, or being active, or so on.
Then you could compare SCHP to VWITX, but there could be a component of unexpected inflation protection with SCHP and then whatever else went on with VWITX.
The thing is, from my perspective this is just going to collapse back to comparing SCHP to VGIT. Whatever else is happening with VWITX versus SCHP/VGIT is going to be about something else.
By the way, the exact timing of unexpected inflation curves tends to depend on how far back you look for inflation expectations. But if you use something like trailing 10 year expectations, it starts at the beginning of 2021, and is still happening:
