TIP vs. ACWI: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the iShares MSCI ACWI ETF (ACWI) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and ACWI is a iShares N/A fund. So, what’s the difference between TIP and ACWI? And which fund is better?

The expense ratio of TIP is 0.13 percentage points lower than ACWI’s (0.19% vs. 0.32%). TIP is mostly comprised of AAA bonds while ACWI has a high exposure to the technology sector. Overall, TIP has provided lower returns than ACWI over the past ten years.

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

Summary

TIP ACWI
Name iShares TIPS Bond ETF iShares MSCI ACWI ETF
Category Inflation-Protected Bond N/A
Issuer iShares iShares
AUM 28.3B 16.85B
Avg. Return 4.07% 10.21%
Div. Yield 1.87% 1.39%
Expense Ratio 0.19% 0.32%

The iShares TIPS Bond ETF (TIP) is a Inflation-Protected Bond fund that is issued by iShares. It currently has 28.3B total assets under management and has yielded an average annual return of 4.07% over the past 10 years. The fund has a dividend yield of 1.87% with an expense ratio of 0.19%.

The iShares MSCI ACWI ETF (ACWI) is a N/A fund that is issued by iShares. It currently has 16.85B total assets under management and has yielded an average annual return of 10.21% over the past 10 years. The fund has a dividend yield of 1.39% with an expense ratio of 0.32%.

TIP’s dividend yield is 0.48% higher than that of ACWI (1.87% vs. 1.39%). Also, TIP yielded on average 6.14% less per year over the past decade (4.07% vs. 10.21%). The expense ratio of TIP is 0.13 percentage points lower than ACWI’s (0.19% vs. 0.32%).

Fund Composition

Holdings

TIP - Holdings

TIP Bond Sectors Weight
AAA 99.31%
Others 0.69%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

TIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.31%, 0.69%, 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.

ACWI - Holdings

ACWI Holdings Weight
Apple Inc 3.44%
Microsoft Corp 2.91%
Amazon.com Inc 2.21%
Facebook Inc A 1.25%
Alphabet Inc Class C 1.12%
Alphabet Inc A 1.09%
Taiwan Semiconductor Manufacturing Co Ltd 0.79%
Tesla Inc 0.78%
NVIDIA Corp 0.74%
JPMorgan Chase & Co 0.71%

ACWI’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, and Alphabet Inc Class C at 3.44%, 2.91%, 2.21%, 1.25%, and 1.12%.

Alphabet Inc A (1.09%), Taiwan Semiconductor Manufacturing Co Ltd (0.79%), and Tesla Inc (0.78%) have a slightly smaller but still significant weight. NVIDIA Corp and JPMorgan Chase & Co are also represented in the ACWI’s holdings at 0.74% and 0.71%.

Risk Analysis

TIP ACWI
Mean Return 0.28 0.89
R-squared 66.57 99.96
Std. Deviation 4.33 14.05
Alpha -0.58 0.15
Beta 1.18 1
Sharpe Ratio 0.62 0.71
Treynor Ratio 2.24 9.45

The iShares TIPS Bond ETF (TIP) has a Treynor Ratio of 2.24 with a Mean Return of 0.28 and a Standard Deviation of 4.33. Its Sharpe Ratio is 0.62 while TIP’s Beta is 1.18. Furthermore, the fund has a R-squared of 66.57 and a Alpha of -0.58.

The iShares MSCI ACWI ETF (ACWI) has a Alpha of 0.15 with a Sharpe Ratio of 0.71 and a Treynor Ratio of 9.45. Its Standard Deviation is 14.05 while ACWI’s R-squared is 99.96. Furthermore, the fund has a Mean Return of 0.89 and a Beta of 1.

TIP’s Mean Return is 0.61 points lower than that of ACWI and its R-squared is 33.39 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than ACWI. The Alpha and Beta of TIP are 0.73 points lower and 0.18 points higher than ACWI’s Alpha and Beta.

Performance

Annual Returns

TIP vs. ACWI - Annual Returns

Year TIP ACWI
2020 10.91% 16.38%
2019 8.28% 26.7%
2018 -1.43% -9.15%
2017 2.92% 24.35%
2016 4.56% 8.22%
2015 -1.59% -2.39%
2014 3.49% 4.64%
2013 -8.65% 22.91%
2012 6.8% 15.99%
2011 13.4% -7.6%
2010 6.1% 12.31%

TIP had its best year in 2011 with an annual return of 13.4%. TIP’s worst year over the past decade yielded -8.65% and occurred in 2013. In most years the iShares TIPS Bond ETF provided moderate returns such as in 2014, 2016, and 2010 where annual returns amounted to 3.49%, 4.56%, and 6.1% respectively.

The year 2019 was the strongest year for ACWI, returning 26.7% on an annual basis. The poorest year for ACWI in the last ten years was 2018, with a yield of -9.15%. Most years the iShares MSCI ACWI ETF has given investors modest returns, such as in 2016, 2010, and 2012, when gains were 8.22%, 12.31%, and 15.99% respectively.

Portfolio Growth

TIP vs. ACWI - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
ACWI $10,000 $27,241 10.21%

A $10,000 investment in TIP would have resulted in a final balance of $15,229. This is a profit of $5,229 over 11 years and amounts to a compound annual growth rate (CAGR) of 4.07%.

With a $10,000 investment in ACWI, the end total would have been $27,241. This equates to a $17,241 profit over 11 years and a compound annual growth rate (CAGR) of 10.21%.

TIP’s CAGR is 6.14 percentage points lower than that of ACWI and as a result, would have yielded $12,012 less on a $10,000 investment. Thus, TIP performed worse than ACWI by 6.14% annually.


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