TIP vs. EMB: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and EMB is a iShares Emerging Markets Bond fund. So, what’s the difference between TIP and EMB? And which fund is better?

The expense ratio of TIP is 0.20 percentage points lower than EMB’s (0.19% vs. 0.39%). TIP is mostly comprised of AAA bonds and EMB has a high exposure to BBB bond. Overall, TIP has provided lower returns than EMB over the past ten years.

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

Summary

TIP EMB
Name iShares TIPS Bond ETF iShares J.P. Morgan USD Emerging Markets Bond ETF
Category Inflation-Protected Bond Emerging Markets Bond
Issuer iShares iShares
AUM 28.3B 19.76B
Avg. Return 4.07% 6.43%
Div. Yield 1.87% 3.85%
Expense Ratio 0.19% 0.39%

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 J.P. Morgan USD Emerging Markets Bond ETF (EMB) is a Emerging Markets Bond fund that is issued by iShares. It currently has 19.76B total assets under management and has yielded an average annual return of 6.43% over the past 10 years. The fund has a dividend yield of 3.85% with an expense ratio of 0.39%.

TIP’s dividend yield is 1.98% lower than that of EMB (1.87% vs. 3.85%). Also, TIP yielded on average 2.36% less per year over the past decade (4.07% vs. 6.43%). The expense ratio of TIP is 0.20 percentage points lower than EMB’s (0.19% vs. 0.39%).

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.

EMB - Holdings

EMB Bond Sectors Weight
BBB 33.79%
B 21.97%
BB 16.92%
A 13.67%
AA 7.97%
Below B 4.49%
Others 1.11%
AAA 0.09%
US Government 0.0%

EMB’s Top Bond Sectors are ratings of BBB, B, BB, A, and AA at 33.79%, 21.97%, 16.92%, 13.67%, and 7.97%. The fund is less weighted towards Below B (4.49%), Others (1.11%), and AAA (0.09%) rated bonds.

Risk Analysis

TIP EMB
Mean Return 0.28 0.44
R-squared 66.57 23.34
Std. Deviation 4.33 8.44
Alpha -0.58 0.89
Beta 1.18 1.36
Sharpe Ratio 0.62 0.55
Treynor Ratio 2.24 3.24

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

The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has a Beta of 1.36 with a Alpha of 0.89 and a Standard Deviation of 8.44. Its Treynor Ratio is 3.24 while EMB’s Sharpe Ratio is 0.55. Furthermore, the fund has a Mean Return of 0.44 and a R-squared of 23.34.

TIP’s Mean Return is 0.16 points lower than that of EMB and its R-squared is 43.23 points higher. With a Standard Deviation of 4.33, TIP is slightly less volatile than EMB. The Alpha and Beta of TIP are 1.47 points lower and 0.18 points lower than EMB’s Alpha and Beta.

Performance

Annual Returns

TIP vs. EMB - Annual Returns

Year TIP EMB
2020 10.91% 5.48%
2019 8.28% 15.57%
2018 -1.43% -5.67%
2017 2.92% 9.98%
2016 4.56% 9.41%
2015 -1.59% 0.43%
2014 3.49% 6.69%
2013 -8.65% -7.42%
2012 6.8% 17.64%
2011 13.4% 7.2%
2010 6.1% 11.47%

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 2012 was the strongest year for EMB, returning 17.64% on an annual basis. The poorest year for EMB in the last ten years was 2013, with a yield of -7.42%. Most years the iShares J.P. Morgan USD Emerging Markets Bond ETF has given investors modest returns, such as in 2014, 2011, and 2016, when gains were 6.69%, 7.2%, and 9.41% respectively.

Portfolio Growth

TIP vs. EMB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
EMB $10,000 $19,295 6.43%

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 EMB, the end total would have been $19,295. This equates to a $9,295 profit over 11 years and a compound annual growth rate (CAGR) of 6.43%.

TIP’s CAGR is 2.36 percentage points lower than that of EMB and as a result, would have yielded $4,066 less on a $10,000 investment. Thus, TIP performed worse than EMB by 2.36% annually.


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