TIP vs. SDY: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the SPDR S&P Dividend ETF (SDY) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and SDY is a SPDR State Street Global Advisors Large Value fund. So, what’s the difference between TIP and SDY? And which fund is better?

The expense ratio of TIP is 0.16 percentage points lower than SDY’s (0.19% vs. 0.35%). TIP is mostly comprised of AAA bonds while SDY has a high exposure to the financial services sector. Overall, TIP has provided lower returns than SDY over the past ten years.

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

Summary

TIP SDY
Name iShares TIPS Bond ETF SPDR S&P Dividend ETF
Category Inflation-Protected Bond Large Value
Issuer iShares SPDR State Street Global Advisors
AUM 28.3B 19.67B
Avg. Return 4.07% 12.44%
Div. Yield 1.87% 2.65%
Expense Ratio 0.19% 0.35%

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 SPDR S&P Dividend ETF (SDY) is a Large Value fund that is issued by SPDR State Street Global Advisors. It currently has 19.67B total assets under management and has yielded an average annual return of 12.44% over the past 10 years. The fund has a dividend yield of 2.65% with an expense ratio of 0.35%.

TIP’s dividend yield is 0.78% lower than that of SDY (1.87% vs. 2.65%). Also, TIP yielded on average 8.37% less per year over the past decade (4.07% vs. 12.44%). The expense ratio of TIP is 0.16 percentage points lower than SDY’s (0.19% vs. 0.35%).

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.

SDY - Holdings

SDY Holdings Weight
Exxon Mobil Corp 2.81%
AT&T Inc 2.5%
South Jersey Industries Inc 2.22%
Chevron Corp 2.02%
International Business Machines Corp 2.0%
AbbVie Inc 1.93%
National Retail Properties Inc 1.86%
Federal Realty Investment Trust 1.77%
Realty Income Corp 1.7%
Old Republic International Corp 1.65%

SDY’s Top Holdings are Exxon Mobil Corp, AT&T Inc, South Jersey Industries Inc, Chevron Corp, and International Business Machines Corp at 2.81%, 2.5%, 2.22%, 2.02%, and 2.0%.

AbbVie Inc (1.93%), National Retail Properties Inc (1.86%), and Federal Realty Investment Trust (1.77%) have a slightly smaller but still significant weight. Realty Income Corp and Old Republic International Corp are also represented in the SDY’s holdings at 1.7% and 1.65%.

Risk Analysis

TIP SDY
Mean Return 0.28 1.07
R-squared 66.57 83.62
Std. Deviation 4.33 12.9
Alpha -0.58 -0.1
Beta 1.18 0.87
Sharpe Ratio 0.62 0.95
Treynor Ratio 2.24 13.94

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

The SPDR S&P Dividend ETF (SDY) has a Sharpe Ratio of 0.95 with a Alpha of -0.1 and a Mean Return of 1.07. Its Beta is 0.87 while SDY’s R-squared is 83.62. Furthermore, the fund has a Standard Deviation of 12.9 and a Treynor Ratio of 13.94.

TIP’s Mean Return is 0.79 points lower than that of SDY and its R-squared is 17.05 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than SDY. The Alpha and Beta of TIP are 0.48 points lower and 0.31 points higher than SDY’s Alpha and Beta.

Performance

Annual Returns

TIP vs. SDY - Annual Returns

Year TIP SDY
2020 10.91% 1.78%
2019 8.28% 23.37%
2018 -1.43% -2.73%
2017 2.92% 15.84%
2016 4.56% 20.17%
2015 -1.59% -0.7%
2014 3.49% 13.8%
2013 -8.65% 30.09%
2012 6.8% 11.51%
2011 13.4% 7.28%
2010 6.1% 16.41%

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 SDY, returning 30.09% on an annual basis. The poorest year for SDY in the last ten years was 2018, with a yield of -2.73%. Most years the SPDR S&P Dividend ETF has given investors modest returns, such as in 2012, 2014, and 2017, when gains were 11.51%, 13.8%, and 15.84% respectively.

Portfolio Growth

TIP vs. SDY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
SDY $10,000 $34,806 12.44%

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 SDY, the end total would have been $34,806. This equates to a $24,806 profit over 11 years and a compound annual growth rate (CAGR) of 12.44%.

TIP’s CAGR is 8.37 percentage points lower than that of SDY and as a result, would have yielded $19,577 less on a $10,000 investment. Thus, TIP performed worse than SDY by 8.37% annually.


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