TIP vs. GOVT: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the iShares U.S. Treasury Bond ETF (GOVT) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and GOVT is a iShares Intermediate Government fund. So, what’s the difference between TIP and GOVT? And which fund is better?

The expense ratio of TIP is 0.14 percentage points higher than GOVT’s (0.19% vs. 0.05%). TIP is mostly comprised of AAA bonds and GOVT has a high exposure to AAA bond. Overall, TIP has provided higher returns than GOVT over the past ten years.

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

Summary

TIP GOVT
Name iShares TIPS Bond ETF iShares U.S. Treasury Bond ETF
Category Inflation-Protected Bond Intermediate Government
Issuer iShares iShares
AUM 28.3B 17.07B
Avg. Return 4.07% 2.67%
Div. Yield 1.87% 1.0%
Expense Ratio 0.19% 0.05%

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 U.S. Treasury Bond ETF (GOVT) is a Intermediate Government fund that is issued by iShares. It currently has 17.07B total assets under management and has yielded an average annual return of 2.67% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.05%.

TIP’s dividend yield is 0.87% higher than that of GOVT (1.87% vs. 1.0%). Also, TIP yielded on average 1.40% more per year over the past decade (4.07% vs. 2.67%). The expense ratio of TIP is 0.14 percentage points higher than GOVT’s (0.19% vs. 0.05%).

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.

GOVT - Holdings

GOVT Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

GOVT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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.

Risk Analysis

TIP GOVT
Mean Return 0.28 0
R-squared 66.57 0
Std. Deviation 4.33 0
Alpha -0.58 0
Beta 1.18 0
Sharpe Ratio 0.62 0
Treynor Ratio 2.24 0

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

The iShares U.S. Treasury Bond ETF (GOVT) has a Standard Deviation of 0 with a Alpha of 0 and a Treynor Ratio of 0. Its Sharpe Ratio is 0 while GOVT’s Beta is 0. Furthermore, the fund has a R-squared of 0 and a Mean Return of 0.

TIP’s Mean Return is 0.28 points higher than that of GOVT and its R-squared is 66.57 points higher. With a Standard Deviation of 4.33, TIP is slightly more volatile than GOVT. The Alpha and Beta of TIP are 0.58 points lower and 1.18 points higher than GOVT’s Alpha and Beta.

Performance

Annual Returns

TIP vs. GOVT - Annual Returns

Year TIP GOVT
2020 10.91% 7.92%
2019 8.28% 6.71%
2018 -1.43% 0.74%
2017 2.92% 2.19%
2016 4.56% 0.92%
2015 -1.59% 0.76%
2014 3.49% 4.99%
2013 -8.65% -2.84%
2012 6.8% 0.0%
2011 13.4% 0.0%
2010 6.1% 0.0%

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 2020 was the strongest year for GOVT, returning 7.92% on an annual basis. The poorest year for GOVT in the last ten years was 2013, with a yield of -2.84%. Most years the iShares U.S. Treasury Bond ETF has given investors modest returns, such as in 2018, 2015, and 2016, when gains were 0.74%, 0.76%, and 0.92% respectively.

Portfolio Growth

TIP vs. GOVT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $11,851 4.07%
GOVT $10,000 $12,297 2.67%

A $10,000 investment in TIP would have resulted in a final balance of $11,851. This is a profit of $1,851 over 8 years and amounts to a compound annual growth rate (CAGR) of 4.07%.

With a $10,000 investment in GOVT, the end total would have been $12,297. This equates to a $2,297 profit over 8 years and a compound annual growth rate (CAGR) of 2.67%.

TIP’s CAGR is 1.40 percentage points higher than that of GOVT and as a result, would have yielded $446 less on a $10,000 investment. Thus, TIP outperformed GOVT by 1.40% annually.


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