TIP vs. SHY: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and SHY is a iShares Short Government fund. So, what’s the difference between TIP and SHY? And which fund is better?

The expense ratio of TIP is 0.04 percentage points higher than SHY’s (0.19% vs. 0.15%). TIP is mostly comprised of AAA bonds and SHY has a high exposure to AAA bond. Overall, TIP has provided higher returns than SHY over the past ten years.

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

Summary

TIP SHY
Name iShares TIPS Bond ETF iShares 1-3 Year Treasury Bond ETF
Category Inflation-Protected Bond Short Government
Issuer iShares iShares
AUM 28.3B 19.51B
Avg. Return 4.07% 1.27%
Div. Yield 1.87% 0.46%
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 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.

TIP’s dividend yield is 1.41% higher than that of SHY (1.87% vs. 0.46%). Also, TIP yielded on average 2.80% more per year over the past decade (4.07% vs. 1.27%). The expense ratio of TIP is 0.04 percentage points higher than SHY’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.

SHY - Holdings

SHY Bond Sectors Weight
AAA 99.67%
Others 0.33%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 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.

Risk Analysis

TIP SHY
Mean Return 0.28 0.09
R-squared 66.57 39.11
Std. Deviation 4.33 0.89
Alpha -0.58 -0.03
Beta 1.18 0.18
Sharpe Ratio 0.62 0.54
Treynor Ratio 2.24 2.6

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

The iShares 1-3 Year Treasury Bond ETF (SHY) has a R-squared of 39.11 with a Alpha of -0.03 and a Sharpe Ratio of 0.54. Its Treynor Ratio is 2.6 while SHY’s Mean Return is 0.09. Furthermore, the fund has a Beta of 0.18 and a Standard Deviation of 0.89.

TIP’s Mean Return is 0.19 points higher than that of SHY and its R-squared is 27.46 points higher. With a Standard Deviation of 4.33, TIP is slightly more volatile than SHY. The Alpha and Beta of TIP are 0.55 points lower and 1.00 points higher than SHY’s Alpha and Beta.

Performance

Annual Returns

TIP vs. SHY - Annual Returns

Year TIP SHY
2020 10.91% 3.01%
2019 8.28% 3.42%
2018 -1.43% 1.45%
2017 2.92% 0.27%
2016 4.56% 0.75%
2015 -1.59% 0.43%
2014 3.49% 0.48%
2013 -8.65% 0.23%
2012 6.8% 0.31%
2011 13.4% 1.43%
2010 6.1% 2.23%

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 SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.

Portfolio Growth

TIP vs. SHY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
SHY $10,000 $11,486 1.27%

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 SHY, the end total would have been $11,486. This equates to a $1,486 profit over 11 years and a compound annual growth rate (CAGR) of 1.27%.

TIP’s CAGR is 2.80 percentage points higher than that of SHY and as a result, would have yielded $3,743 more on a $10,000 investment. Thus, TIP outperformed SHY by 2.80% annually.


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