TIP vs. QUAL: What’s The Difference?

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.

Summary

TIP QUAL
Name iShares TIPS Bond ETF iShares MSCI USA Quality Factor ETF
Category Inflation-Protected Bond Large Blend
Issuer iShares iShares
AUM 28.3B 23.93B
Avg. Return 4.07% 13.42%
Div. Yield 1.87% 1.29%
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 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%).

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.

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
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%.

Risk Analysis

TIP QUAL
Mean Return 0.28 0
R-squared 66.57 0
Std. Deviation 4.33 0
Alpha -0.58 0
Beta 1.18 0
Sharpe Ratio 0.62 0
Treynor Ratio 2.24 0

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.

Performance

Annual Returns

TIP vs. QUAL - Annual Returns

Year TIP QUAL
2020 10.91% 16.96%
2019 8.28% 34.14%
2018 -1.43% -5.77%
2017 2.92% 22.26%
2016 4.56% 9.18%
2015 -1.59% 5.56%
2014 3.49% 11.62%
2013 -8.65% 0.0%
2012 6.8% 0.0%
2011 13.4% 0.0%
2010 6.1% 0.0%

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.

Portfolio Growth

TIP vs. QUAL - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $12,973 4.07%
QUAL $10,000 $23,251 13.42%

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.


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