TIP vs. PFF: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the iShares Preferred and Income Securities ETF (PFF) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and PFF is a iShares Preferred Stock fund. So, what’s the difference between TIP and PFF? And which fund is better?

The expense ratio of TIP is 0.27 percentage points lower than PFF’s (0.19% vs. 0.46%). TIP is mostly comprised of AAA bonds while PFF has a high exposure to the utilities sector. Overall, TIP has provided lower returns than PFF over the past ten years.

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

Summary

TIP PFF
Name iShares TIPS Bond ETF iShares Preferred and Income Securities ETF
Category Inflation-Protected Bond Preferred Stock
Issuer iShares iShares
AUM 28.3B 19.8B
Avg. Return 4.07% 6.90%
Div. Yield 1.87% 4.47%
Expense Ratio 0.19% 0.46%

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 Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.

TIP’s dividend yield is 2.60% lower than that of PFF (1.87% vs. 4.47%). Also, TIP yielded on average 2.83% less per year over the past decade (4.07% vs. 6.90%). The expense ratio of TIP is 0.27 percentage points lower than PFF’s (0.19% vs. 0.46%).

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.

PFF - Holdings

PFF Holdings Weight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A 2.54%
BlackRock Cash Funds Treasury SL Agency 2.3%
Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L- 1.79%
Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L- 1.49%
ArcelorMittal S.A. 5.5% 1.36%
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A 1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B 1.14%
NextEra Energy Inc Unit 1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 1.08%
Avantor Inc Ser A 0.99%

PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.

Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.

Risk Analysis

TIP PFF
Mean Return 0.28 0.52
R-squared 66.57 9.39
Std. Deviation 4.33 7.87
Alpha -0.58 3.45
Beta 1.18 0.81
Sharpe Ratio 0.62 0.72
Treynor Ratio 2.24 6.79

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

The iShares Preferred and Income Securities ETF (PFF) has a Standard Deviation of 7.87 with a Treynor Ratio of 6.79 and a Beta of 0.81. Its R-squared is 9.39 while PFF’s Mean Return is 0.52. Furthermore, the fund has a Sharpe Ratio of 0.72 and a Alpha of 3.45.

TIP’s Mean Return is 0.24 points lower than that of PFF and its R-squared is 57.18 points higher. With a Standard Deviation of 4.33, TIP is slightly less volatile than PFF. The Alpha and Beta of TIP are 4.03 points lower and 0.37 points higher than PFF’s Alpha and Beta.

Performance

Annual Returns

TIP vs. PFF - Annual Returns

Year TIP PFF
2020 10.91% 7.94%
2019 8.28% 15.62%
2018 -1.43% -4.77%
2017 2.92% 8.33%
2016 4.56% 1.26%
2015 -1.59% 4.62%
2014 3.49% 13.45%
2013 -8.65% -0.59%
2012 6.8% 18.25%
2011 13.4% -2.2%
2010 6.1% 13.96%

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 2012 was the strongest year for PFF, returning 18.25% on an annual basis. The poorest year for PFF in the last ten years was 2018, with a yield of -4.77%. Most years the iShares Preferred and Income Securities ETF has given investors modest returns, such as in 2015, 2020, and 2017, when gains were 4.62%, 7.94%, and 8.33% respectively.

Portfolio Growth

TIP vs. PFF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
PFF $10,000 $20,272 6.90%

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 PFF, the end total would have been $20,272. This equates to a $10,272 profit over 11 years and a compound annual growth rate (CAGR) of 6.90%.

TIP’s CAGR is 2.83 percentage points lower than that of PFF and as a result, would have yielded $5,043 less on a $10,000 investment. Thus, TIP performed worse than PFF by 2.83% annually.


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