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TIP vs. SCHD: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the Schwab U.S. Dividend Equity ETF (SCHD) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and SCHD is a Schwab ETFs Large Value fund. So, what’s the difference between TIP and SCHD? And which fund is better?

The expense ratio of TIP is 0.13 percentage points higher than SCHD’s (0.19% vs. 0.06%). TIP is mostly comprised of AAA bonds while SCHD has a high exposure to the financial services sector. Overall, TIP has provided lower returns than SCHD over the past ten years.

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

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Summary

TIPSCHD
NameiShares TIPS Bond ETFSchwab U.S. Dividend Equity ETF
CategoryInflation-Protected BondLarge Value
IssueriSharesSchwab ETFs
AUM28.3B26B
Avg. Return4.07%14.80%
Div. Yield1.87%2.89%
Expense Ratio0.19%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 Schwab U.S. Dividend Equity ETF (SCHD) is a Large Value fund that is issued by Schwab ETFs. It currently has 26B total assets under management and has yielded an average annual return of 14.80% over the past 10 years. The fund has a dividend yield of 2.89% with an expense ratio of 0.06%.

TIP’s dividend yield is 1.02% lower than that of SCHD (1.87% vs. 2.89%). Also, TIP yielded on average 10.73% less per year over the past decade (4.07% vs. 14.80%). The expense ratio of TIP is 0.13 percentage points higher than SCHD’s (0.19% vs. 0.06%).

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Fund Composition

Holdings

TIP - Holdings

TIP Bond SectorsWeight
AAA99.31%
Others0.69%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

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.

SCHD - Holdings

SCHD HoldingsWeight
Merck & Co Inc4.24%
The Home Depot Inc4.19%
Texas Instruments Inc4.16%
Broadcom Inc4.15%
Amgen Inc4.11%
PepsiCo Inc4.09%
BlackRock Inc4.05%
Pfizer Inc3.97%
Verizon Communications Inc3.96%
Cisco Systems Inc3.96%

SCHD’s Top Holdings are Merck & Co Inc, The Home Depot Inc, Texas Instruments Inc, Broadcom Inc, and Amgen Inc at 4.24%, 4.19%, 4.16%, 4.15%, and 4.11%.

PepsiCo Inc (4.09%), BlackRock Inc (4.05%), and Pfizer Inc (3.97%) have a slightly smaller but still significant weight. Verizon Communications Inc and Cisco Systems Inc are also represented in the SCHD’s holdings at 3.96% and 3.96%.

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Risk Analysis

TIPSCHD
Mean Return0.280
R-squared66.570
Std. Deviation4.330
Alpha-0.580
Beta1.180
Sharpe Ratio0.620
Treynor Ratio2.240

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

The Schwab U.S. Dividend Equity ETF (SCHD) has a Sharpe Ratio of 0 with a Mean Return of 0 and a Treynor Ratio of 0. Its R-squared is 0 while SCHD’s Alpha is 0. Furthermore, the fund has a Beta of 0 and a Standard Deviation of 0.

TIP’s Mean Return is 0.28 points higher than that of SCHD and its R-squared is 66.57 points higher. With a Standard Deviation of 4.33, TIP is slightly more volatile than SCHD. The Alpha and Beta of TIP are 0.58 points lower and 1.18 points higher than SCHD’s Alpha and Beta.

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Performance

Annual Returns

TIP vs. SCHD - Annual Returns

YearTIPSCHD
202010.91%15.11%
20198.28%27.28%
2018-1.43%-5.46%
20172.92%20.88%
20164.56%16.25%
2015-1.59%-0.21%
20143.49%11.66%
2013-8.65%32.9%
20126.8%11.4%
201113.4%0.0%
20106.1%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 2013 was the strongest year for SCHD, returning 32.9% on an annual basis. The poorest year for SCHD in the last ten years was 2018, with a yield of -5.46%. Most years the Schwab U.S. Dividend Equity ETF has given investors modest returns, such as in 2012, 2014, and 2020, when gains were 11.4%, 11.66%, and 15.11% respectively.

Portfolio Growth

TIP vs. SCHD - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
TIP$10,000$11,8514.07%
SCHD$10,000$28,82314.80%

A $10,000 investment in TIP would have resulted in a final balance of $11,851. This is a profit of $1,851 over 8 years and amounts to a compound annual growth rate (CAGR) of 4.07%.

With a $10,000 investment in SCHD, the end total would have been $28,823. This equates to a $18,823 profit over 8 years and a compound annual growth rate (CAGR) of 14.80%.

TIP’s CAGR is 10.73 percentage points lower than that of SCHD and as a result, would have yielded $16,972 less on a $10,000 investment. Thus, TIP performed worse than SCHD by 10.73% annually.


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