The iShares TIPS Bond ETF (TIP) and the iShares MSCI Emerging Markets ETF (EEM) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and EEM is a iShares Diversified Emerging Mkts fund. So, what’s the difference between TIP and EEM? And which fund is better?
The expense ratio of TIP is 0.49 percentage points lower than EEM’s (0.19% vs. 0.68%). TIP is mostly comprised of AAA bonds while EEM has a high exposure to the technology sector. Overall, TIP has provided lower returns than EEM over the past ten years.
In this article, we’ll compare TIP vs. EEM. We’ll look at performance and risk metrics, as well as at their fund composition and annual returns. Moreover, I’ll also discuss TIP’s and EEM’s industry exposure, holdings, and portfolio growth and examine how these affect their overall returns.
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|Name||iShares TIPS Bond ETF||iShares MSCI Emerging Markets ETF|
|Category||Inflation-Protected Bond||Diversified Emerging Mkts|
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 Emerging Markets ETF (EEM) is a Diversified Emerging Mkts fund that is issued by iShares. It currently has 30.33B total assets under management and has yielded an average annual return of 5.47% over the past 10 years. The fund has a dividend yield of 1.48% with an expense ratio of 0.68%.
TIP’s dividend yield is 0.39% higher than that of EEM (1.87% vs. 1.48%). Also, TIP yielded on average 1.40% less per year over the past decade (4.07% vs. 5.47%). The expense ratio of TIP is 0.49 percentage points lower than EEM’s (0.19% vs. 0.68%).
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|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.
|Taiwan Semiconductor Manufacturing Co Ltd||6.36%|
|Alibaba Group Holding Ltd Ordinary Shares||4.58%|
|Tencent Holdings Ltd||4.41%|
|Samsung Electronics Co Ltd||4.05%|
|Naspers Ltd Class N||1.04%|
|Reliance Industries Ltd Shs Dematerialised||0.97%|
|China Construction Bank Corp Class H||0.83%|
EEM’s Top Holdings are Taiwan Semiconductor Manufacturing Co Ltd, Alibaba Group Holding Ltd Ordinary Shares, Tencent Holdings Ltd, Samsung Electronics Co Ltd, and Meituan at 6.36%, 4.58%, 4.41%, 4.05%, and 1.24%.
Vale SA (1.04%), Naspers Ltd Class N (1.04%), and Reliance Industries Ltd Shs Dematerialised (0.97%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the EEM’s holdings at 0.92% and 0.83%.
The iShares TIPS Bond ETF (TIP) has a Sharpe Ratio of 0.62 with a Beta of 1.18 and a Treynor Ratio of 2.24. Its Standard Deviation is 4.33 while TIP’s Mean Return is 0.28. Furthermore, the fund has a R-squared of 66.57 and a Alpha of -0.58.
The iShares MSCI Emerging Markets ETF (EEM) has a Mean Return of 0.38 with a Alpha of -2.33 and a Treynor Ratio of 2.22. Its Standard Deviation is 17.79 while EEM’s Sharpe Ratio is 0.22. Furthermore, the fund has a Beta of 1.08 and a R-squared of 83.5.
TIP’s Mean Return is 0.10 points lower than that of EEM and its R-squared is 16.93 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than EEM. The Alpha and Beta of TIP are 1.75 points higher and 0.10 points higher than EEM’s Alpha and Beta.
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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 2017 was the strongest year for EEM, returning 36.42% on an annual basis. The poorest year for EEM in the last ten years was 2011, with a yield of -18.87%. Most years the iShares MSCI Emerging Markets ETF has given investors modest returns, such as in 2014, 2016, and 2010, when gains were -2.82%, 10.51%, and 15.93% 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 EEM, the end total would have been $15,578. This equates to a $5,578 profit over 11 years and a compound annual growth rate (CAGR) of 5.47%.
TIP’s CAGR is 1.40 percentage points lower than that of EEM and as a result, would have yielded $349 less on a $10,000 investment. Thus, TIP performed worse than EEM by 1.40% annually.
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