TIP vs. IAU: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the iShares Gold Trust (IAU) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and IAU is a iShares N/A fund. So, what’s the difference between TIP and IAU? And which fund is better?

The expense ratio of TIP is 0.06 percentage points lower than IAU’s (0.19% vs. 0.25%). TIP is mostly comprised of AAA bonds while IAU has a high exposure to the technology sector. Overall, TIP has provided lower returns than IAU over the past ten years.

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

Summary

TIP IAU
Name iShares TIPS Bond ETF iShares Gold Trust
Category Inflation-Protected Bond N/A
Issuer iShares iShares
AUM 28.3B 28.61B
Avg. Return 4.07% 6.03%
Div. Yield 1.87% 0.0%
Expense Ratio 0.19% 0.25%

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 Gold Trust (IAU) is a N/A fund that is issued by iShares. It currently has 28.61B total assets under management and has yielded an average annual return of 6.03% over the past 10 years. The fund has a dividend yield of 0.0% with an expense ratio of 0.25%.

TIP’s dividend yield is 1.87% higher than that of IAU (1.87% vs. 0.0%). Also, TIP yielded on average 1.96% less per year over the past decade (4.07% vs. 6.03%). The expense ratio of TIP is 0.06 percentage points lower than IAU’s (0.19% vs. 0.25%).

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.

IAU - Holdings

IAU Holdings Weight
Gold 100.0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%

IAU’s Top Holdings are Gold, N/A, N/A, N/A, and N/A at 100.0%, 0%, 0%, 0%, and 0%.

N/A (0%), N/A (0%), and N/A (0%) have a slightly smaller but still significant weight. N/A and N/A are also represented in the IAU’s holdings at 0% and 0%.

Risk Analysis

TIP IAU
Mean Return 0.28 0.23
R-squared 66.57 16.03
Std. Deviation 4.33 16.97
Alpha -0.58 4.16
Beta 1.18 0.48
Sharpe Ratio 0.62 0.13
Treynor Ratio 2.24 1.5

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

The iShares Gold Trust (IAU) has a Alpha of 4.16 with a Treynor Ratio of 1.5 and a Sharpe Ratio of 0.13. Its Mean Return is 0.23 while IAU’s Beta is 0.48. Furthermore, the fund has a R-squared of 16.03 and a Standard Deviation of 16.97.

TIP’s Mean Return is 0.05 points higher than that of IAU and its R-squared is 50.54 points higher. With a Standard Deviation of 4.33, TIP is slightly less volatile than IAU. The Alpha and Beta of TIP are 4.74 points lower and 0.70 points higher than IAU’s Alpha and Beta.

Performance

Annual Returns

TIP vs. IAU - Annual Returns

Year TIP IAU
2020 10.91% 23.86%
2019 8.28% 18.54%
2018 -1.43% -1.39%
2017 2.92% 11.58%
2016 4.56% 8.85%
2015 -1.59% -11.65%
2014 3.49% -0.44%
2013 -8.65% -27.96%
2012 6.8% 8.37%
2011 13.4% 8.66%
2010 6.1% 27.93%

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 2010 was the strongest year for IAU, returning 27.93% on an annual basis. The poorest year for IAU in the last ten years was 2013, with a yield of -27.96%. Most years the iShares Gold Trust has given investors modest returns, such as in 2012, 2011, and 2016, when gains were 8.37%, 8.66%, and 8.85% respectively.

Portfolio Growth

TIP vs. IAU - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
IAU $10,000 $16,786 6.03%

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 IAU, the end total would have been $16,786. This equates to a $6,786 profit over 11 years and a compound annual growth rate (CAGR) of 6.03%.

TIP’s CAGR is 1.96 percentage points lower than that of IAU and as a result, would have yielded $1,557 less on a $10,000 investment. Thus, TIP performed worse than IAU by 1.96% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

3) If you are interested in crypto, check out Gemini. I've started allocating a small amount of assets to the growing crypto space and Gemini has just been a breeze to use. Once you register, make sure to also open an Active Trader account to buy crypto at the lowest fees on the market (just 0.03%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply