PFF vs. VTIP: What’s The Difference?

The iShares Preferred and Income Securities ETF (PFF) and the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) are both among the Top 100 ETFs. PFF is a iShares Preferred Stock fund and VTIP is a Vanguard Inflation-Protected Bond fund. So, what’s the difference between PFF and VTIP? And which fund is better?

The expense ratio of PFF is 0.41 percentage points higher than VTIP’s (0.46% vs. 0.05%). PFF also has a high exposure to the utilities sector while VTIP is mostly comprised of AAA bonds. Overall, PFF has provided higher returns than VTIP over the past 7 years.

In this article, we’ll compare PFF vs. VTIP. We’ll look at holdings and performance, as well as at their annual returns and fund composition. Moreover, I’ll also discuss PFF’s and VTIP’s industry exposure, risk metrics, and portfolio growth and examine how these affect their overall returns.

Summary

PFF VTIP
Name iShares Preferred and Income Securities ETF Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares
Category Preferred Stock Inflation-Protected Bond
Issuer iShares Vanguard
AUM 19.8B 50.67B
Avg. Return 6.90% 1.79%
Div. Yield 4.47% 1.35%
Expense Ratio 0.46% 0.05%

The iShares Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.

The Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) is a Inflation-Protected Bond fund that is issued by Vanguard. It currently has 50.67B total assets under management and has yielded an average annual return of 1.79% over the past 10 years. The fund has a dividend yield of 1.35% with an expense ratio of 0.05%.

PFF’s dividend yield is 3.12% higher than that of VTIP (4.47% vs. 1.35%). Also, PFF yielded on average 5.10% more per year over the past decade (6.90% vs. 1.79%). The expense ratio of PFF is 0.41 percentage points higher than VTIP’s (0.46% vs. 0.05%).

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Fund Composition

Holdings

PFF - Holdings

PFF Holdings Weight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A 2.54%
BlackRock Cash Funds Treasury SL Agency 2.3%
Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L- 1.79%
Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L- 1.49%
ArcelorMittal S.A. 5.5% 1.36%
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A 1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B 1.14%
NextEra Energy Inc Unit 1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 1.08%
Avantor Inc Ser A 0.99%

PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.

Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.

VTIP - Holdings

VTIP Bond Sectors Weight
AAA 99.87%
Others 0.13%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

VTIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.87%, 0.13%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

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Risk Analysis

PFF VTIP
Mean Return 0.52 0
R-squared 9.39 0
Std. Deviation 7.87 0
Alpha 3.45 0
Beta 0.81 0
Sharpe Ratio 0.72 0
Treynor Ratio 6.79 0

The iShares Preferred and Income Securities ETF (PFF) has a R-squared of 9.39 with a Standard Deviation of 7.87 and a Mean Return of 0.52. Its Sharpe Ratio is 0.72 while PFF’s Treynor Ratio is 6.79. Furthermore, the fund has a Alpha of 3.45 and a Beta of 0.81.

The Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) has a Mean Return of 0 with a Sharpe Ratio of 0 and a Standard Deviation of 0. Its Treynor Ratio is 0 while VTIP’s Beta is 0. Furthermore, the fund has a R-squared of 0 and a Alpha of 0.

PFF’s Mean Return is 0.52 points higher than that of VTIP and its R-squared is 9.39 points higher. With a Standard Deviation of 7.87, PFF is slightly more volatile than VTIP. The Alpha and Beta of PFF are 3.45 points higher and 0.81 points higher than VTIP’s Alpha and Beta.

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Performance

Annual Returns

PFF vs. VTIP - Annual Returns

Year PFF VTIP
2020 7.94% 4.97%
2019 15.62% 4.83%
2018 -4.77% 0.54%
2017 8.33% 0.82%
2016 1.26% 2.71%
2015 4.62% -0.15%
2014 13.45% -1.17%
2013 -0.59% -1.55%
2012 18.25% 0.0%
2011 -2.2% 0.0%
2010 13.96% 0.0%

PFF had its best year in 2012 with an annual return of 18.25%. PFF’s worst year over the past decade yielded -4.77% and occurred in 2018. In most years the iShares Preferred and Income Securities ETF provided moderate returns such as in 2015, 2020, and 2017 where annual returns amounted to 4.62%, 7.94%, and 8.33% respectively.

The year 2020 was the strongest year for VTIP, returning 4.97% on an annual basis. The poorest year for VTIP in the last ten years was 2013, with a yield of -1.55%. Most years the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares has given investors modest returns, such as in 2011, 2010, and 2018, when gains were 0.0%, 0.0%, and 0.54% respectively.

Portfolio Growth

PFF vs. VTIP - Portfolio Growth

Fund Initial Balance Final Balance CAGR
PFF $10,000 $15,473 6.90%
VTIP $10,000 $11,305 1.79%

A $10,000 investment in PFF would have resulted in a final balance of $15,473. This is a profit of $5,473 over 7 years and amounts to a compound annual growth rate (CAGR) of 6.90%.

With a $10,000 investment in VTIP, the end total would have been $11,305. This equates to a $1,305 profit over 7 years and a compound annual growth rate (CAGR) of 1.79%.

PFF’s CAGR is 5.10 percentage points higher than that of VTIP and as a result, would have yielded $4,168 more on a $10,000 investment. Thus, PFF outperformed VTIP by 5.10% annually.


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