TIP vs. DFAC: What’s The Difference?

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.

Summary

TIP DFAC
Name iShares TIPS Bond ETF Dimensional U.S. Core Equity 2 ETF
Category Inflation-Protected Bond Large Blend
Issuer iShares Dimensional Fund Advisors
AUM 28.3B 13.53B
Avg. Return 4.07% 13.93%
Div. Yield 1.87% 1.0%
Expense Ratio 0.19% 0.19%

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%.

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.

DFAC - Holdings

DFAC Holdings Weight
Apple Inc 4.7%
Microsoft Corp 3.81%
Amazon.com Inc 2.39%
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%.

Risk Analysis

TIP DFAC
Mean Return 0.28 1.19
R-squared 66.57 95.1
Std. Deviation 4.33 15.55
Alpha -0.58 -2.75
Beta 1.18 1.12
Sharpe Ratio 0.62 0.88
Treynor Ratio 2.24 11.85

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.

Performance

Annual Returns

TIP vs. DFAC - Annual Returns

Year TIP DFAC
2020 10.91% 15.8%
2019 8.28% 29.54%
2018 -1.43% -9.43%
2017 2.92% 18.82%
2016 4.56% 16.31%
2015 -1.59% -2.53%
2014 3.49% 9.56%
2013 -8.65% 37.55%
2012 6.8% 17.93%
2011 13.4% -1.96%
2010 6.1% 21.67%

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.

Portfolio Growth

TIP vs. DFAC - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
DFAC $10,000 $38,796 13.93%

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.


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