The iShares TIPS Bond ETF (TIP) and the Dimensional U.S. Core Equity 2 ETF (DFAC) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and DFAC is a Dimensional Fund Advisors Large Blend fund. So, what’s the difference between TIP and DFAC? And which fund is better?
TIP and DFAC have the same expense ratio: 0.19%. TIP is mostly comprised of AAA bonds while DFAC has a high exposure to the technology sector. Overall, TIP has provided lower returns than DFAC over the past ten years.
In this article, we’ll compare TIP vs. DFAC. We’ll look at risk metrics and holdings, as well as at their performance and portfolio growth. Moreover, I’ll also discuss TIP’s and DFAC’s annual returns, industry exposure, and fund composition and examine how these affect their overall returns.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
|Name||iShares TIPS Bond ETF||Dimensional U.S. Core Equity 2 ETF|
|Category||Inflation-Protected Bond||Large Blend|
|Issuer||iShares||Dimensional Fund Advisors|
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 Dimensional U.S. Core Equity 2 ETF (DFAC) is a Large Blend fund that is issued by Dimensional Fund Advisors. It currently has 13.53B total assets under management and has yielded an average annual return of 13.93% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.19%.
TIP’s dividend yield is 0.87% higher than that of DFAC (1.87% vs. 1.0%). Also, TIP yielded on average 9.86% less per year over the past decade (4.07% vs. 13.93%). TIP and DFAC have the same expense ratio: 0.19%.
FYI: The best way I've found to invest is through M1 Finance. It's free and you even get an instant line of credit and 100$! Have a look here (link to M1 Finance).
|TIP Bond Sectors||Weight|
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.
|Johnson & Johnson||1.05%|
|Facebook Inc Class A||1.05%|
|JPMorgan Chase & Co||1.0%|
|Alphabet Inc Class C||0.85%|
|Alphabet Inc Class A||0.84%|
|Berkshire Hathaway Inc Class B||0.75%|
|Visa Inc Class A||0.74%|
DFAC’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Johnson & Johnson, and Facebook Inc Class A at 4.7%, 3.81%, 2.39%, 1.05%, and 1.05%.
JPMorgan Chase & Co (1.0%), Alphabet Inc Class C (0.85%), and Alphabet Inc Class A (0.84%) have a slightly smaller but still significant weight. Berkshire Hathaway Inc Class B and Visa Inc Class A are also represented in the DFAC’s holdings at 0.75% and 0.74%.
The iShares TIPS Bond ETF (TIP) has a Alpha of -0.58 with a R-squared of 66.57 and a Beta of 1.18. Its Treynor Ratio is 2.24 while TIP’s Sharpe Ratio is 0.62. Furthermore, the fund has a Standard Deviation of 4.33 and a Mean Return of 0.28.
The Dimensional U.S. Core Equity 2 ETF (DFAC) has a Sharpe Ratio of 0.88 with a R-squared of 95.1 and a Mean Return of 1.19. Its Beta is 1.12 while DFAC’s Standard Deviation is 15.55. Furthermore, the fund has a Alpha of -2.75 and a Treynor Ratio of 11.85.
TIP’s Mean Return is 0.91 points lower than that of DFAC and its R-squared is 28.53 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than DFAC. The Alpha and Beta of TIP are 2.17 points higher and 0.06 points higher than DFAC’s Alpha and Beta.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
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 2013 was the strongest year for DFAC, returning 37.55% on an annual basis. The poorest year for DFAC in the last ten years was 2018, with a yield of -9.43%. Most years the Dimensional U.S. Core Equity 2 ETF has given investors modest returns, such as in 2020, 2016, and 2012, when gains were 15.8%, 16.31%, and 17.93% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
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 DFAC, the end total would have been $38,796. This equates to a $28,796 profit over 11 years and a compound annual growth rate (CAGR) of 13.93%.
TIP’s CAGR is 9.86 percentage points lower than that of DFAC and as a result, would have yielded $23,567 less on a $10,000 investment. Thus, TIP performed worse than DFAC by 9.86% annually.
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.