Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

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tonyclifton
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Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by tonyclifton »

I currently own a Schwab TIPS ETF in my Roth IRA and am looking to add a TIPS Mutual Fund in my Fidelity HSA. Fidelity has the Fidelity Inflation-Protected Bond Index Fund (FIPDX). Fidelity says it invests 80% of funds in inflation-protected securities while Schwab says 90%. Does the 80% make Fidelity more "risky" since the fund manager can use up to 20% of the money for investing other than in inflation-protected securities? With "risk" being defined as the money I invest is not actually in inflation-protected securities.

If it matters, Schwab's US TIPS Mutual Fund with the ticker SWRSX is the same as the Schwab US TIPS ETF with the ticker SCHP.

Both have nearly all of current holdings in inflation-protected securities. Both have roughly similar performance.

Here are the statements regarding the holding policies:

Fidelity Inflation-Protected Bond Index Fund (FIPDX)
"Normally investing at least 80% of assets in inflation-protected debt securities included in the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index (Series-L). Engaging in transactions that have a leveraging effect on the fund, including investments in derivatives - such as swaps (interest rate, total return, and credit default) and futures contracts - and forward-settling securities, to adjust the fund's risk exposure."

Schwab U.S. TIPS ETF (SCHP)
"It is the fund’s policy that under normal circumstances it will invest at least 90% of its net assets (including, for this purpose, any borrowings for investment purposes) in securities included in the index."
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by grabiner »

The 80% in a fund prospectus is a legal term which gives the fund some flexibility for special circumstances. You need to check what the fund actually owns, and for most TIPS funds, this should be 99% TIPS.

(An example of a fund which does use this flexibility is Vanguard Intermediate-Term Treasury Bond Fund. This fund is only 85% Treasuries, with the rest in government agency bonds and Small Business Administration bonds. Vanguard also has Intermediate-Term Treasury Index which is all Treasuries.)
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by Ferdinand2014 »

FIPDX currently owns 99.83 TIPS. I would have no worries.

https://fundresearch.fidelity.com/mutua ... /31635T104
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by tonyclifton »

Thank you! I appreciate the confirmation.
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by abuss368 »

grabiner wrote: Wed Nov 18, 2020 10:52 pm The 80% in a fund prospectus is a legal term which gives the fund some flexibility for special circumstances. You need to check what the fund actually owns, and for most TIPS funds, this should be 99% TIPS.

(An example of a fund which does use this flexibility is Vanguard Intermediate-Term Treasury Bond Fund. This fund is only 85% Treasuries, with the rest in government agency bonds and Small Business Administration bonds. Vanguard also has Intermediate-Term Treasury Index which is all Treasuries.)
Hi David -

Thank you for that explanation. I too believed that the 80% (which is in every fund prospectus) was legally required and perhaps to provide flexibility to a fund manager. However, actual fund holdings may be different.

Appreciate that clarification.
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by Northern Flicker »

The Fidelity fund is an excellent intermediate TIPS fund. The flexibility to hold non-TIPS gives the managers some flexibility to deal with say periods of poor liquidity of TIPS, and potentially to use derivatives like interest rate swaps to manage duration. The Schwab ETF is a TIPS index fund, which eliminates the active management risk of funds like FIPDX or VAIPX, which I think is already low to begin with. An active TIPS fund can be 100% TIPS and still have some manager risk from say actively managing portfolio duration.
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by Ferdinand2014 »

Northern Flicker wrote: Thu Nov 19, 2020 6:35 pm The Fidelity fund is an excellent intermediate TIPS fund. The flexibility to hold non-TIPS gives the managers some flexibility to deal with say periods of poor liquidity of TIPS, and potentially to use derivatives like interest rate swaps to manage duration. The Schwab ETF is a TIPS index fund, which eliminates the active management risk of funds like FIPDX or VAIPX, which I think is already low to begin with. An active TIPS fund can be 100% TIPS and still have some manager risk from say actively managing portfolio duration.
I believe FIPDX is index based. The fund expense ratio is 5 basis points which would be very low for actively managed?

"Normally investing at least 80% of assets in inflation-protected debt securities included in the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index (Series-L)."
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by Northern Flicker »

Mea culpa, you are correct. The relevant statement is not that it invests at least 80% in the index, but the objective:

Seeks to provide investment results that correspond to the total return of the inflation-protected sector of the United States Treasury market.
Risk is not a guarantor of return.
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by tonyclifton »

Back to the 80%...If the Fidelity Fund is tracking the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index...Is the 20% that can be invested outside of the index a potential source of tracking error - leading to either under or over performing the index?
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by vineviz »

tonyclifton wrote: Fri Nov 20, 2020 6:36 am Back to the 80%...If the Fidelity Fund is tracking the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index...Is the 20% that can be invested outside of the index a potential source of tracking error - leading to either under or over performing the index?
No. Certainly no more (or less) than any other index fund.
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by dcabler »

tonyclifton wrote: Wed Nov 18, 2020 5:24 pm I currently own a Schwab TIPS ETF in my Roth IRA and am looking to add a TIPS Mutual Fund in my Fidelity HSA. Fidelity has the Fidelity Inflation-Protected Bond Index Fund (FIPDX). Fidelity says it invests 80% of funds in inflation-protected securities while Schwab says 90%. Does the 80% make Fidelity more "risky" since the fund manager can use up to 20% of the money for investing other than in inflation-protected securities? With "risk" being defined as the money I invest is not actually in inflation-protected securities.

If it matters, Schwab's US TIPS Mutual Fund with the ticker SWRSX is the same as the Schwab US TIPS ETF with the ticker SCHP.

Both have nearly all of current holdings in inflation-protected securities. Both have roughly similar performance.

Here are the statements regarding the holding policies:

Fidelity Inflation-Protected Bond Index Fund (FIPDX)
"Normally investing at least 80% of assets in inflation-protected debt securities included in the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index (Series-L). Engaging in transactions that have a leveraging effect on the fund, including investments in derivatives - such as swaps (interest rate, total return, and credit default) and futures contracts - and forward-settling securities, to adjust the fund's risk exposure."

Schwab U.S. TIPS ETF (SCHP)
"It is the fund’s policy that under normal circumstances it will invest at least 90% of its net assets (including, for this purpose, any borrowings for investment purposes) in securities included in the index."
As others have said, you'll find such 80% or 90% language in most index funds. I've owned both SCHP and FIPDX over time. They have the same e/r but their effective durations are different with SCHP currently slightly longer at 7.9 years and FIPDX being 5.6 years. So you'll likely see slightly better long term returns with SCHP, but with slightly more volatility.

I'm currently in FIPDX as part of a TIPs ladder for a future income stream created by holding 2 TIPs funds with differing durations and adjusting the effective duration of the combination of the two over time. This was first described by BobK in this post: viewtopic.php?t=134471&start=50#p1995193 It's also been discussed elsewhere in the forum by vineviz and others.

For where I currently am in the ladder the 2 funds I hold are LTPZ and FIPDX. I update the proportion of each once per quarter. Takes about 5 minutes. The annoying thing is that some funds, like LTPZ, are capable of updating their effective durations daily while SCHP updates only once a quarter and FIPDX updates once a month. What tipped (pun intended) the scales for FIPDX was that FIPDX updates 7-8 days into the month whereas SCHP updates once per quarter but it takes 2-3 weeks into the new month of a quarter to update. Both updates give new durations as of the last day of the previous quarter. So I capture LTPZ's duration for the last day of the previous quarter and hold it till I get FIPDX's update, then make the proportion changes between FIPDX and LTPZ. So there will always be about a week or so slippage. There are other intermediate term options out there that update daily (like TIP from ishares) but I haven't found one with comparable e/r to either FIPDX or SCHP.

Eventually I'll be done with LTPZ and the two funds will be FIPDX and, likely, STIP. Once I'm done with FIPDX, which is for the final 5 years of the ladder, the options change. STIP will be the longer duration fund, but currently there is no ultra-short TIPs fund available anymore. Proshares had one for a short time but closed it. So nominal funds, money market, CD's, T-Bills and the like will be the option. It's a long ways from now so perhaps there will be other options by then. Not sweating it.

This falls only into the "annoying" scheme of things and I believe will have no material difference in the final outcome of what I'm trying to achieve whether I used FIPDX or SCHP. Right along with the fact that after I sell some LTPZ, I have to wait a couple of days for it to settle before I can purchase FIPDX. One bonus for me is that once per quarter I get to "do something" in my account which requires selling and purchasing. Scratches a very tiny itch. :D
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by tonyclifton »

dcabler wrote: Fri Nov 20, 2020 8:05 am As others have said, you'll find such 80% or 90% language in most index funds.
Noted! I'll stop being concerned about it and move on :)
dcabler wrote: Fri Nov 20, 2020 8:05 am I'm currently in FIPDX as part of a TIPs ladder for a future income stream created by holding 2 TIPs funds with differing durations and adjusting the effective duration of the combination of the two over time. This was first described by BobK in this post: viewtopic.php?t=134471&start=50#p1995193 It's also been discussed elsewhere in the forum by vineviz and others.
Thank you for this link. Interesting subject and I hadn't read the Life Cycle Finance part of the wiki until now. I'm using MaxiFi planning software which uses the Life-Cycle Hypothesis which seems pretty similar - and a useful guiding compass. I appreciate your example of using the TIPS funds to simulate a ladder - very helpful. One decision we recently made was not to buy individual TIPS or I-Bonds and instead go with the ease of purchase TIPS funds (the .05% expense ratio seems worth it).

You gave me homework! I'll do some work on the effective duration of our various fixed income holdings so that I understand how they relate better. Our goal with the TIPS funds are to try to create a low risk "cost of living adjustment" for a pension.
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by RNJ »

Over 10 years the performance of these funds perfectly mirror each other. You're good either / both.
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by dcabler »

tonyclifton wrote: Fri Nov 20, 2020 1:18 pm
dcabler wrote: Fri Nov 20, 2020 8:05 am As others have said, you'll find such 80% or 90% language in most index funds.
Noted! I'll stop being concerned about it and move on :)
dcabler wrote: Fri Nov 20, 2020 8:05 am I'm currently in FIPDX as part of a TIPs ladder for a future income stream created by holding 2 TIPs funds with differing durations and adjusting the effective duration of the combination of the two over time. This was first described by BobK in this post: viewtopic.php?t=134471&start=50#p1995193 It's also been discussed elsewhere in the forum by vineviz and others.
Thank you for this link. Interesting subject and I hadn't read the Life Cycle Finance part of the wiki until now. I'm using MaxiFi planning software which uses the Life-Cycle Hypothesis which seems pretty similar - and a useful guiding compass. I appreciate your example of using the TIPS funds to simulate a ladder - very helpful. One decision we recently made was not to buy individual TIPS or I-Bonds and instead go with the ease of purchase TIPS funds (the .05% expense ratio seems worth it).

You gave me homework! I'll do some work on the effective duration of our various fixed income holdings so that I understand how they relate better. Our goal with the TIPS funds are to try to create a low risk "cost of living adjustment" for a pension.
No problem! Besides our simulated ladder, held in an IRA we are also buying ibonds. Next year is the last year for regular purchases from some money in our taxable account earmarked for that. We'll likely continue with the additional $5k from tax refunds until I retire. Overall the plan is to use both the simulated Tips Ladder and Ibonds to generate a Cola'd stream starting concurrent with SS when we turn 70. Together that should just about cover minimum living expenses as an income floor.
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by Northern Flicker »

tonyclifton wrote: Fri Nov 20, 2020 6:36 am Back to the 80%...If the Fidelity Fund is tracking the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index...Is the 20% that can be invested outside of the index a potential source of tracking error - leading to either under or over performing the index?
No. They are trying to track the index very accurately if it is an index fund. Deviating ftom the index very much would be viewed as a portfolio management shortcoming. This may be to give them flexibility to use say some nominal treasuries or derivatives at times when it will help them track the index more accurately. It also may just be boilerplate language used in all funds as suggested by others.

Look at the historical tracking error to see how they have done in the past.
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by tonyclifton »

Northern Flicker wrote: Sat Nov 21, 2020 12:14 am Look at the historical tracking error to see how they have done in the past.
I will do that. Thank you!
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by #Cruncher »

dcabler wrote: Fri Nov 20, 2020 8:05 amI've owned both SCHP and FIPDX over time. They have the same e/r but their effective durations are different with SCHP currently slightly longer at 7.9 years and FIPDX being 5.6 years. So you'll likely see slightly better long term returns with SCHP, but with slightly more volatility.
The 5.62 duration for Fidelity's FIPDX is overstated Ooops! s/b "understated". [1] It holds pretty much the same TIPS as Schwab's SCHP. This can be seen in the following graph of their holdings by maturity year. [2] In fact the weighted average times until maturity for the two funds are almost identical: 8.39 years for SWRSX and 8.35 for FIPDX. [3] Since the two funds have the same expense ratio, you should expect them to have the same long term returns with the same volatility.

Image

  1. I'm not sure why FIPDX reports such a low duration. My guess is that Fidelity is attempting to show the average of the holdings' sensitivity to changes in nominal Treasury rates, rather than to TIPS rates themselves.
  2. Instead of the SCHP ETF, I used the holdings for the mutual fund version, SWRSX, since they were available for 9/30/2020.
  3. Here is the calculation of the funds' average maturity. (Scroll down to the bottom to see.) Both funds have shorter average maturities than the 1+ index that they follow -- 9.14 years as shown in my post, Re: Consistent Yield & Duration to Help Choose TIPS Fund.

    Code: Select all

                       - % of Mkt Value 9/30/20 -
      Matures   Years  1+ Index    SWRSX    FIPDX

    Code: Select all

     1/15/2022   1.29    2.992%   3.431%   3.466%
     4/15/2022   1.54    3.003%   3.289%   3.548%
     7/15/2022   1.79    2.954%   3.276%   3.417%
     1/15/2023   2.29    2.956%   3.762%   3.837%
     4/15/2023   2.54    3.199%   3.209%   3.178%
     7/15/2023   2.79    2.986%   3.715%   3.779%
     1/15/2024   3.29    3.015%   3.619%   3.762%
     4/15/2024   3.54    2.190%   2.371%   2.570%
     7/15/2024   3.79    2.950%   3.484%   3.620%
    10/15/2024   4.04    2.351%   2.756%   2.702%
     1/15/2025   4.29    5.769%   5.845%   6.021%
     4/15/2025   4.54    2.366%   2.773%   2.807%
     7/15/2025   4.79    3.031%   3.383%   3.387%
     1/15/2026   5.29    5.095%   4.632%   4.830%
     7/15/2026   5.79    2.693%   2.793%   2.834%
     1/15/2027   6.29    4.460%   4.270%   4.414%
     7/15/2027   6.79    2.710%   2.890%   3.004%
     1/15/2028   7.29    4.322%   4.557%   4.610%
     4/15/2028   7.54    2.302%   1.547%   1.541%
     7/15/2028   7.79    2.720%   2.814%   2.911%
     1/15/2029   8.29    4.087%   3.708%   3.789%
     4/15/2029   8.54    2.785%   1.968%   1.993%
     7/15/2029   8.79    2.813%   2.650%   2.698%
     1/15/2030   9.29    2.849%   3.310%   3.324%
     7/15/2030   9.79    2.049%   2.369%   0.000%
     4/15/2032  11.54    0.691%   0.709%   0.642%
     2/15/2040  19.38    1.742%   0.954%   1.042%
     2/15/2041  20.38    2.755%   1.385%   1.368%
     2/15/2042  21.38    2.086%   1.910%   1.964%
     2/15/2043  22.38    1.997%   1.390%   1.367%
     2/15/2044  23.38    2.277%   2.221%   2.337%
     2/15/2045  24.38    2.015%   2.184%   2.157%
     2/15/2046  25.38    1.880%   1.276%   1.321%
     2/15/2047  26.38    1.670%   1.444%   1.370%
     2/15/2048  27.38    1.696%   1.337%   1.491%
     2/15/2049  28.38    1.383%   1.352%   1.472%
     2/15/2050  29.38    1.162%   1.420%   1.428%
                       -------- -------- --------
             Total     100.000% 100.000% 100.000%
     Wtd Avg Years        9.14     8.39     8.35
Last edited by #Cruncher on Sun Nov 22, 2020 10:35 am, edited 2 times in total.
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by dcabler »

#Cruncher wrote: Sun Nov 22, 2020 6:55 am
dcabler wrote: Fri Nov 20, 2020 8:05 amI've owned both SCHP and FIPDX over time. They have the same e/r but their effective durations are different with SCHP currently slightly longer at 7.9 years and FIPDX being 5.6 years. So you'll likely see slightly better long term returns with SCHP, but with slightly more volatility.
The 5.62 duration for Fidelity's FIPDX is overstated. [1] It holds pretty much the same TIPS as Schwab's SCHP. This can be seen in the following graph of their holdings by maturity year. [2] In fact the weighted average times until maturity for the two funds are almost identical: 8.39 years for SWRSX and 8.35 for FIPDX. [3] Since the two funds have the same expense ratio, you should expect them to have the same long term returns with the same volatility.

Image

  1. I'm not sure why FIPDX's reports such a low duration. My guess is that Fidelity is attempting to show the average of the holdings' sensitivity to changes in nominal Treasury rates, rather than to TIPS rates themselves.
  2. Instead of the SCHP ETF, I used the holdings for the mutual fund version, SWRSX, since they were available for 9/30/2020.
  3. Here is the calculation of the funds' average maturity. (Scroll down to the bottom to see.) Both funds have shorter average maturities than the 1+ index that they follow -- 9.14 years as shown in my post, Re: Consistent Yield & Duration to Help Choose TIPS Fund.

    Code: Select all

                       - % of Mkt Value 9/30/20 -
      Matures   Years  1+ Index    SWRSX    FIPDX
     1/15/2022   1.29    2.992%   3.431%   3.466%
     4/15/2022   1.54    3.003%   3.289%   3.548%
     7/15/2022   1.79    2.954%   3.276%   3.417%
     1/15/2023   2.29    2.956%   3.762%   3.837%
     4/15/2023   2.54    3.199%   3.209%   3.178%
     7/15/2023   2.79    2.986%   3.715%   3.779%
     1/15/2024   3.29    3.015%   3.619%   3.762%
     4/15/2024   3.54    2.190%   2.371%   2.570%
     7/15/2024   3.79    2.950%   3.484%   3.620%
    10/15/2024   4.04    2.351%   2.756%   2.702%
     1/15/2025   4.29    5.769%   5.845%   6.021%
     4/15/2025   4.54    2.366%   2.773%   2.807%
     7/15/2025   4.79    3.031%   3.383%   3.387%
     1/15/2026   5.29    5.095%   4.632%   4.830%
     7/15/2026   5.79    2.693%   2.793%   2.834%
     1/15/2027   6.29    4.460%   4.270%   4.414%
     7/15/2027   6.79    2.710%   2.890%   3.004%
     1/15/2028   7.29    4.322%   4.557%   4.610%
     4/15/2028   7.54    2.302%   1.547%   1.541%
     7/15/2028   7.79    2.720%   2.814%   2.911%
     1/15/2029   8.29    4.087%   3.708%   3.789%
     4/15/2029   8.54    2.785%   1.968%   1.993%
     7/15/2029   8.79    2.813%   2.650%   2.698%
     1/15/2030   9.29    2.849%   3.310%   3.324%
     7/15/2030   9.79    2.049%   2.369%   0.000%
     4/15/2032  11.54    0.691%   0.709%   0.642%
     2/15/2040  19.38    1.742%   0.954%   1.042%
     2/15/2041  20.38    2.755%   1.385%   1.368%
     2/15/2042  21.38    2.086%   1.910%   1.964%
     2/15/2043  22.38    1.997%   1.390%   1.367%
     2/15/2044  23.38    2.277%   2.221%   2.337%
     2/15/2045  24.38    2.015%   2.184%   2.157%
     2/15/2046  25.38    1.880%   1.276%   1.321%
     2/15/2047  26.38    1.670%   1.444%   1.370%
     2/15/2048  27.38    1.696%   1.337%   1.491%
     2/15/2049  28.38    1.383%   1.352%   1.472%
     2/15/2050  29.38    1.162%   1.420%   1.428%
                       -------- -------- --------
             Total     100.000% 100.000% 100.000%
     Wtd Avg Years        9.14     8.39     8.35
Thanks cruncher! I'll need to adjust my ratio calculation accordingly. I'll add this to the list of annoying things about how funds calculate effective duration and when they report them. :D
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by tonyclifton »

#Cruncher wrote: Sun Nov 22, 2020 6:55 am I'm not sure why FIPDX's reports such a low duration.
Another difference between the two funds is turnover rate. Fidelity has a 47% turnover rate while Schwab has a 22.9% turnover rate. Given that they both hold about the same # of TIPS (43 for Fidelity and 44 for Schwab), wouldn't the specific TIPS that were turned over impact the duration?

Fidelity shows an R squared of .98 and Schwab has an R squared of 1.00 which means both track the underlying index very closely.

Conclusion: While the duration and turnover rate show differences between the two funds it isn't relevant as they both are accurately tracking the same index which means the final performance is equivalent.
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by grabiner »

tonyclifton wrote: Sun Nov 22, 2020 10:04 am
#Cruncher wrote: Sun Nov 22, 2020 6:55 am I'm not sure why FIPDX's reports such a low duration.
Another difference between the two funds is turnover rate. Fidelity has a 47% turnover rate while Schwab has a 22.9% turnover rate. Given that they both hold about the same # of TIPS (43 for Fidelity and 44 for Schwab), wouldn't the specific TIPS that were turned over impact the duration?
Turnover won't affect duration directly; duration is determined by current holdings.

The relation between duration and maturity of a bond is not fixed, as it depends on the coupon rate. Old TIPS, which have much higher coupons, will have durations somewhat shorter than their maturities. Conversely, new TIPS with negative coupons and negative yields should have durations longer than their maturities.

Still, that isn't enough to cover the difference between the two reported durations. I suspect, as other posters do, that Fidelity is trying to estimate risk; a TIPS fund with an 8-year real interest rate duration will be less volatile than a Treasury fund with an 8-year nominal interest rate duration. For similar reasons, Vanguard puts its Inflation-Protected Securities fund in the medium interest-rate risk category, and its High-Yield Tax-Exempt in the high interest-rate risk category, even though the Inflation-Protected Securities fund has a longer duration. (Here, there is the additional issue that TIPS are not callable, but most munis are; if rates rise, the duration of callable bonds increases because they will not be called.)
Wiki David Grabiner
Northern Flicker
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by Northern Flicker »

#Cruncher wrote: Sun Nov 22, 2020 6:55 am
dcabler wrote: Fri Nov 20, 2020 8:05 amI've owned both SCHP and FIPDX over time. They have the same e/r but their effective durations are different with SCHP currently slightly longer at 7.9 years and FIPDX being 5.6 years. So you'll likely see slightly better long term returns with SCHP, but with slightly more volatility.
The 5.62 duration for Fidelity's FIPDX is overstated Ooops! s/b "understated". [1] It holds pretty much the same TIPS as Schwab's SCHP. This can be seen in the following graph of their holdings by maturity year. [2] In fact the weighted average times until maturity for the two funds are almost identical: 8.39 years for SWRSX and 8.35 for FIPDX. [3] Since the two funds have the same expense ratio, you should expect them to have the same long term returns with the same volatility.

Image

  1. I'm not sure why FIPDX reports such a low duration. My guess is that Fidelity is attempting to show the average of the holdings' sensitivity to changes in nominal Treasury rates, rather than to TIPS rates themselves.
Both SCHP and FIPDX are described as index funds and both are tracking the same index (Bloomberg Barclays Series-L TIPS index). You can see in this backtest that the difference in performance of 1bp/yr is approximately reflective of the difference of 1.5 bp in ERs.

https://www.portfoliovisualizer.com/bac ... ion2_2=100
Risk is not a guarantor of return.
dcabler
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Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by dcabler »

Northern Flicker wrote: Sun Nov 22, 2020 5:52 pm
#Cruncher wrote: Sun Nov 22, 2020 6:55 am
dcabler wrote: Fri Nov 20, 2020 8:05 amI've owned both SCHP and FIPDX over time. They have the same e/r but their effective durations are different with SCHP currently slightly longer at 7.9 years and FIPDX being 5.6 years. So you'll likely see slightly better long term returns with SCHP, but with slightly more volatility.
The 5.62 duration for Fidelity's FIPDX is overstated Ooops! s/b "understated". [1] It holds pretty much the same TIPS as Schwab's SCHP. This can be seen in the following graph of their holdings by maturity year. [2] In fact the weighted average times until maturity for the two funds are almost identical: 8.39 years for SWRSX and 8.35 for FIPDX. [3] Since the two funds have the same expense ratio, you should expect them to have the same long term returns with the same volatility.

Image

  1. I'm not sure why FIPDX reports such a low duration. My guess is that Fidelity is attempting to show the average of the holdings' sensitivity to changes in nominal Treasury rates, rather than to TIPS rates themselves.
Both SCHP and FIPDX are described as index funds and both are tracking the same index (Bloomberg Barclays Series-L TIPS index). You can see in this backtest that the difference in performance of 1bp/yr is approximately reflective of the difference of 1.5 bp in ERs.

https://www.portfoliovisualizer.com/bac ... ion2_2=100
Yes. That's clear now. What wasn't clear before is that both SCHP and Fidelity speak of the "Series-L TIPs index" in their documentation whereas there are actually 4 different Series L indexes. https://data.bloomberglp.com/profession ... ries-L.pdf

At least I now know which of the 4 they both refer to.
Cheers.
dcabler
Posts: 1564
Joined: Wed Feb 19, 2014 11:30 am

Re: Comparing a Fidelity TIPS Mutual Fund and a Schwab TIPS ETF

Post by dcabler »

#Cruncher wrote: Sun Nov 22, 2020 6:55 am
dcabler wrote: Fri Nov 20, 2020 8:05 amI've owned both SCHP and FIPDX over time. They have the same e/r but their effective durations are different with SCHP currently slightly longer at 7.9 years and FIPDX being 5.6 years. So you'll likely see slightly better long term returns with SCHP, but with slightly more volatility.
The 5.62 duration for Fidelity's FIPDX is overstated Ooops! s/b "understated". [1] It holds pretty much the same TIPS as Schwab's SCHP. This can be seen in the following graph of their holdings by maturity year. [2] In fact the weighted average times until maturity for the two funds are almost identical: 8.39 years for SWRSX and 8.35 for FIPDX. [3] Since the two funds have the same expense ratio, you should expect them to have the same long term returns with the same volatility.

Image

  1. I'm not sure why FIPDX reports such a low duration. My guess is that Fidelity is attempting to show the average of the holdings' sensitivity to changes in nominal Treasury rates, rather than to TIPS rates themselves.
  2. Instead of the SCHP ETF, I used the holdings for the mutual fund version, SWRSX, since they were available for 9/30/2020.
  3. Here is the calculation of the funds' average maturity. (Scroll down to the bottom to see.) Both funds have shorter average maturities than the 1+ index that they follow -- 9.14 years as shown in my post, Re: Consistent Yield & Duration to Help Choose TIPS Fund.

    Code: Select all

                       - % of Mkt Value 9/30/20 -
      Matures   Years  1+ Index    SWRSX    FIPDX

    Code: Select all

     1/15/2022   1.29    2.992%   3.431%   3.466%
     4/15/2022   1.54    3.003%   3.289%   3.548%
     7/15/2022   1.79    2.954%   3.276%   3.417%
     1/15/2023   2.29    2.956%   3.762%   3.837%
     4/15/2023   2.54    3.199%   3.209%   3.178%
     7/15/2023   2.79    2.986%   3.715%   3.779%
     1/15/2024   3.29    3.015%   3.619%   3.762%
     4/15/2024   3.54    2.190%   2.371%   2.570%
     7/15/2024   3.79    2.950%   3.484%   3.620%
    10/15/2024   4.04    2.351%   2.756%   2.702%
     1/15/2025   4.29    5.769%   5.845%   6.021%
     4/15/2025   4.54    2.366%   2.773%   2.807%
     7/15/2025   4.79    3.031%   3.383%   3.387%
     1/15/2026   5.29    5.095%   4.632%   4.830%
     7/15/2026   5.79    2.693%   2.793%   2.834%
     1/15/2027   6.29    4.460%   4.270%   4.414%
     7/15/2027   6.79    2.710%   2.890%   3.004%
     1/15/2028   7.29    4.322%   4.557%   4.610%
     4/15/2028   7.54    2.302%   1.547%   1.541%
     7/15/2028   7.79    2.720%   2.814%   2.911%
     1/15/2029   8.29    4.087%   3.708%   3.789%
     4/15/2029   8.54    2.785%   1.968%   1.993%
     7/15/2029   8.79    2.813%   2.650%   2.698%
     1/15/2030   9.29    2.849%   3.310%   3.324%
     7/15/2030   9.79    2.049%   2.369%   0.000%
     4/15/2032  11.54    0.691%   0.709%   0.642%
     2/15/2040  19.38    1.742%   0.954%   1.042%
     2/15/2041  20.38    2.755%   1.385%   1.368%
     2/15/2042  21.38    2.086%   1.910%   1.964%
     2/15/2043  22.38    1.997%   1.390%   1.367%
     2/15/2044  23.38    2.277%   2.221%   2.337%
     2/15/2045  24.38    2.015%   2.184%   2.157%
     2/15/2046  25.38    1.880%   1.276%   1.321%
     2/15/2047  26.38    1.670%   1.444%   1.370%
     2/15/2048  27.38    1.696%   1.337%   1.491%
     2/15/2049  28.38    1.383%   1.352%   1.472%
     2/15/2050  29.38    1.162%   1.420%   1.428%
                       -------- -------- --------
             Total     100.000% 100.000% 100.000%
     Wtd Avg Years        9.14     8.39     8.35
Hey Cruncher - when I go to Fidelity and click on their prospectus, then click the "Portfolio Characteristics Report", they report something called "Spread Duration (yrs) as of 9/30/2020" with a value of 7.87. Not quite sure what that is (that's for the next google search), but it's awfully similar to the 9/30 effective duration reported by SCHP of 7.9 years. Looking at etf.com, both the spread duration and effective duration are pretty similar to each other for pretty much any bond fund I look at, whether it's TIPs or nominal. But still puzzled as to why the average maturity is running below the index for both of these funds...
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