TIP vs. IEF: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and IEF is a iShares Long Government fund. So, what’s the difference between TIP and IEF? And which fund is better?

The expense ratio of TIP is 0.04 percentage points higher than IEF’s (0.19% vs. 0.15%). TIP is mostly comprised of AAA bonds and IEF has a high exposure to AAA bond. Overall, TIP has provided lower returns than IEF over the past ten years.

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

Summary

TIP IEF
Name iShares TIPS Bond ETF iShares 7-10 Year Treasury Bond ETF
Category Inflation-Protected Bond Long Government
Issuer iShares iShares
AUM 28.3B 13.44B
Avg. Return 4.07% 5.06%
Div. Yield 1.87% 0.84%
Expense Ratio 0.19% 0.15%

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 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.

TIP’s dividend yield is 1.03% higher than that of IEF (1.87% vs. 0.84%). Also, TIP yielded on average 0.99% less per year over the past decade (4.07% vs. 5.06%). The expense ratio of TIP is 0.04 percentage points higher than IEF’s (0.19% vs. 0.15%).

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.

IEF - Holdings

IEF 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%

IEF’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 IEF
Mean Return 0.28 0.32
R-squared 66.57 77.56
Std. Deviation 4.33 5.42
Alpha -0.58 -1.2
Beta 1.18 1.59
Sharpe Ratio 0.62 0.6
Treynor Ratio 2.24 1.97

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

The iShares 7-10 Year Treasury Bond ETF (IEF) has a Mean Return of 0.32 with a Beta of 1.59 and a Sharpe Ratio of 0.6. Its Standard Deviation is 5.42 while IEF’s Alpha is -1.2. Furthermore, the fund has a Treynor Ratio of 1.97 and a R-squared of 77.56.

TIP’s Mean Return is 0.04 points lower than that of IEF and its R-squared is 10.99 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than IEF. The Alpha and Beta of TIP are 0.62 points higher and 0.41 points lower than IEF’s Alpha and Beta.

Performance

Annual Returns

TIP vs. IEF - Annual Returns

Year TIP IEF
2020 10.91% 9.84%
2019 8.28% 8.38%
2018 -1.43% 0.82%
2017 2.92% 2.47%
2016 4.56% 1.0%
2015 -1.59% 1.55%
2014 3.49% 8.92%
2013 -8.65% -6.12%
2012 6.8% 4.06%
2011 13.4% 15.46%
2010 6.1% 9.29%

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 2011 was the strongest year for IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.

Portfolio Growth

TIP vs. IEF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
IEF $10,000 $16,936 5.06%

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 IEF, the end total would have been $16,936. This equates to a $6,936 profit over 11 years and a compound annual growth rate (CAGR) of 5.06%.

TIP’s CAGR is 0.99 percentage points lower than that of IEF and as a result, would have yielded $1,707 less on a $10,000 investment. Thus, TIP performed worse than IEF by 0.99% annually.


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