TIP vs. HYG: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between TIP and HYG? And which fund is better?

The expense ratio of TIP is 0.29 percentage points lower than HYG’s (0.19% vs. 0.48%). TIP is mostly comprised of AAA bonds and HYG has a high exposure to BB bond. Overall, TIP has provided lower returns than HYG over the past ten years.

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

Summary

TIP HYG
Name iShares TIPS Bond ETF iShares iBoxx $ High Yield Corporate Bond ETF
Category Inflation-Protected Bond High Yield Bond
Issuer iShares iShares
AUM 28.3B 20.03B
Avg. Return 4.07% 6.42%
Div. Yield 1.87% 4.44%
Expense Ratio 0.19% 0.48%

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 iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.

TIP’s dividend yield is 2.57% lower than that of HYG (1.87% vs. 4.44%). Also, TIP yielded on average 2.34% less per year over the past decade (4.07% vs. 6.42%). The expense ratio of TIP is 0.29 percentage points lower than HYG’s (0.19% vs. 0.48%).

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.

HYG - Holdings

HYG Bond Sectors Weight
BB 56.53%
B 31.27%
Below B 11.4%
BBB 0.61%
AAA 0.28%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.09%

HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

Risk Analysis

TIP HYG
Mean Return 0.28 0.46
R-squared 66.57 4.1
Std. Deviation 4.33 6.96
Alpha -0.58 3.58
Beta 1.18 0.48
Sharpe Ratio 0.62 0.7
Treynor Ratio 2.24 10.01

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

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Alpha of 3.58 with a Treynor Ratio of 10.01 and a Standard Deviation of 6.96. Its Beta is 0.48 while HYG’s Mean Return is 0.46. Furthermore, the fund has a R-squared of 4.1 and a Sharpe Ratio of 0.7.

TIP’s Mean Return is 0.18 points lower than that of HYG and its R-squared is 62.47 points higher. With a Standard Deviation of 4.33, TIP is slightly less volatile than HYG. The Alpha and Beta of TIP are 4.16 points lower and 0.70 points higher than HYG’s Alpha and Beta.

Performance

Annual Returns

TIP vs. HYG - Annual Returns

Year TIP HYG
2020 10.91% 4.12%
2019 8.28% 14.23%
2018 -1.43% -1.93%
2017 2.92% 6.09%
2016 4.56% 13.92%
2015 -1.59% -5.55%
2014 3.49% 2.0%
2013 -8.65% 5.9%
2012 6.8% 13.83%
2011 13.4% 5.89%
2010 6.1% 12.07%

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 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.

Portfolio Growth

TIP vs. HYG - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
HYG $10,000 $19,427 6.42%

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 HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.

TIP’s CAGR is 2.34 percentage points lower than that of HYG and as a result, would have yielded $4,198 less on a $10,000 investment. Thus, TIP performed worse than HYG by 2.34% annually.


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