The iShares TIPS Bond ETF (TIP) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and QUAL is a iShares Large Blend fund. So, what’s the difference between TIP and QUAL? And which fund is better?
The expense ratio of TIP is 0.04 percentage points higher than QUAL’s (0.19% vs. 0.15%). TIP is mostly comprised of AAA bonds while QUAL has a high exposure to the technology sector. Overall, TIP has provided lower returns than QUAL over the past ten years.
In this article, we’ll compare TIP vs. QUAL. We’ll look at industry exposure and fund composition, as well as at their annual returns and performance. Moreover, I’ll also discuss TIP’s and QUAL’s holdings, risk metrics, and portfolio growth and examine how these affect their overall returns.
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|Name||iShares TIPS Bond ETF||iShares MSCI USA Quality Factor ETF|
|Category||Inflation-Protected Bond||Large Blend|
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 MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.
TIP’s dividend yield is 0.58% higher than that of QUAL (1.87% vs. 1.29%). Also, TIP yielded on average 9.35% less per year over the past decade (4.07% vs. 13.42%). The expense ratio of TIP is 0.04 percentage points higher than QUAL’s (0.19% vs. 0.15%).
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|TIP Bond Sectors||Weight|
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.
|Facebook Inc Class A||4.77%|
|Nike Inc Class B||4.05%|
|Johnson & Johnson||2.99%|
|Mastercard Inc Class A||2.72%|
|Alphabet Inc Class A||2.49%|
QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.
BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.
The iShares TIPS Bond ETF (TIP) has a Beta of 1.18 with a Treynor Ratio of 2.24 and a Standard Deviation of 4.33. Its R-squared is 66.57 while TIP’s Alpha is -0.58. Furthermore, the fund has a Sharpe Ratio of 0.62 and a Mean Return of 0.28.
The iShares MSCI USA Quality Factor ETF (QUAL) has a Sharpe Ratio of 0 with a Beta of 0 and a Mean Return of 0. Its R-squared is 0 while QUAL’s Standard Deviation is 0. Furthermore, the fund has a Treynor Ratio of 0 and a Alpha of 0.
TIP’s Mean Return is 0.28 points higher than that of QUAL and its R-squared is 66.57 points higher. With a Standard Deviation of 4.33, TIP is slightly more volatile than QUAL. The Alpha and Beta of TIP are 0.58 points lower and 1.18 points higher than QUAL’s Alpha and Beta.
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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 QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in TIP would have resulted in a final balance of $12,973. This is a profit of $2,973 over 7 years and amounts to a compound annual growth rate (CAGR) of 4.07%.
With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.
TIP’s CAGR is 9.35 percentage points lower than that of QUAL and as a result, would have yielded $10,278 less on a $10,000 investment. Thus, TIP performed worse than QUAL by 9.35% annually.
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