TIP vs. IGSB: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and IGSB is a iShares Short-Term Bond fund. So, what’s the difference between TIP and IGSB? And which fund is better?

The expense ratio of TIP is 0.13 percentage points higher than IGSB’s (0.19% vs. 0.06%). TIP is mostly comprised of AAA bonds and IGSB has a high exposure to BBB bond. Overall, TIP has provided higher returns than IGSB over the past ten years.

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

Summary

TIP IGSB
Name iShares TIPS Bond ETF iShares 1-5 Year Investment Grade Corporate Bond ETF
Category Inflation-Protected Bond Short-Term Bond
Issuer iShares iShares
AUM 28.3B 26.63B
Avg. Return 4.07% 2.51%
Div. Yield 1.87% 2.02%
Expense Ratio 0.19% 0.06%

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 1-5 Year Investment Grade Corporate Bond ETF (IGSB) is a Short-Term Bond fund that is issued by iShares. It currently has 26.63B total assets under management and has yielded an average annual return of 2.51% over the past 10 years. The fund has a dividend yield of 2.02% with an expense ratio of 0.06%.

TIP’s dividend yield is 0.15% lower than that of IGSB (1.87% vs. 2.02%). Also, TIP yielded on average 1.57% more per year over the past decade (4.07% vs. 2.51%). The expense ratio of TIP is 0.13 percentage points higher than IGSB’s (0.19% vs. 0.06%).

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.

IGSB - Holdings

IGSB Bond Sectors Weight
BBB 50.48%
A 40.04%
AA 7.46%
AAA 2.21%
BB 0.09%
Below B 0.0%
B 0.0%
US Government 0.0%
Others -0.28%

IGSB’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and BB at 50.48%, 40.04%, 7.46%, 2.21%, and 0.09%. The fund is less weighted towards Below B (0.0%), B (0.0%), and US Government (0.0%) rated bonds.

Risk Analysis

TIP IGSB
Mean Return 0.28 0.19
R-squared 66.57 26.13
Std. Deviation 4.33 2
Alpha -0.58 0.69
Beta 1.18 0.34
Sharpe Ratio 0.62 0.82
Treynor Ratio 2.24 4.82

The iShares TIPS Bond ETF (TIP) has a Sharpe Ratio of 0.62 with a Beta of 1.18 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 Alpha of -0.58 and a Mean Return of 0.28.

The iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) has a R-squared of 26.13 with a Standard Deviation of 2 and a Alpha of 0.69. Its Beta is 0.34 while IGSB’s Mean Return is 0.19. Furthermore, the fund has a Treynor Ratio of 4.82 and a Sharpe Ratio of 0.82.

TIP’s Mean Return is 0.09 points higher than that of IGSB and its R-squared is 40.44 points higher. With a Standard Deviation of 4.33, TIP is slightly more volatile than IGSB. The Alpha and Beta of TIP are 1.27 points lower and 0.84 points higher than IGSB’s Alpha and Beta.

Performance

Annual Returns

TIP vs. IGSB - Annual Returns

Year TIP IGSB
2020 10.91% 5.26%
2019 8.28% 7.01%
2018 -1.43% 1.34%
2017 2.92% 1.41%
2016 4.56% 1.77%
2015 -1.59% 0.7%
2014 3.49% 0.74%
2013 -8.65% 1.03%
2012 6.8% 3.28%
2011 13.4% 1.34%
2010 6.1% 3.69%

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 IGSB, returning 7.01% on an annual basis. The poorest year for IGSB in the last ten years was 2015, with a yield of 0.7%. Most years the iShares 1-5 Year Investment Grade Corporate Bond ETF has given investors modest returns, such as in 2011, 2017, and 2016, when gains were 1.34%, 1.41%, and 1.77% respectively.

Portfolio Growth

TIP vs. IGSB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
IGSB $10,000 $13,103 2.51%

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 IGSB, the end total would have been $13,103. This equates to a $3,103 profit over 11 years and a compound annual growth rate (CAGR) of 2.51%.

TIP’s CAGR is 1.57 percentage points higher than that of IGSB and as a result, would have yielded $2,126 more on a $10,000 investment. Thus, TIP outperformed IGSB by 1.57% annually.


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