By Philip Murphy
As product manager of the S&P STRIDE Indices, I sometimes find myself extolling the virtues of Treasury Inflation-Protected Securities ((TIPS)), which I believe are an underappreciated asset class. When inflation is relatively tame, people often ask why they should think about TIPS. The answer is that TIPS don't hedge expected inflation-that's already priced in. TIPS hedge unexpected inflation, and we are fortunate, because unexpected inflation is what produces particularly unpleasant circumstances if one's portfolio does not keep up.
But hedging unexpected inflation is not the only benefit of TIPS. They also seem to mix well with stocks. Historically, TIPS have exhibited low and sometimes negative correlations with U.S. equities. Exhibit 1 compares the rolling 36-month correlation of the S&P 500® and the S&P 500 Bond Index (made up of corporate bonds issued by S&P 500 companies) to that of the S&P 500 and the S&P…