TIP vs. TLT: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and TLT is a iShares Long Government fund. So, what’s the difference between TIP and TLT? And which fund is better?

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

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

Summary

TIP TLT
Name iShares TIPS Bond ETF iShares 20+ Year Treasury Bond ETF
Category Inflation-Protected Bond Long Government
Issuer iShares iShares
AUM 28.3B 15.15B
Avg. Return 4.07% 9.00%
Div. Yield 1.87% 1.5%
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 20+ Year Treasury Bond ETF (TLT) is a Long Government fund that is issued by iShares. It currently has 15.15B total assets under management and has yielded an average annual return of 9.00% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.

TIP’s dividend yield is 0.37% higher than that of TLT (1.87% vs. 1.5%). Also, TIP yielded on average 4.92% less per year over the past decade (4.07% vs. 9.00%). The expense ratio of TIP is 0.04 percentage points higher than TLT’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.

TLT - Holdings

TLT Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

TLT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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 TLT
Mean Return 0.28 0.63
R-squared 66.57 68.76
Std. Deviation 4.33 12.76
Alpha -0.58 -2.83
Beta 1.18 3.54
Sharpe Ratio 0.62 0.55
Treynor Ratio 2.24 1.82

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

The iShares 20+ Year Treasury Bond ETF (TLT) has a Standard Deviation of 12.76 with a Sharpe Ratio of 0.55 and a R-squared of 68.76. Its Alpha is -2.83 while TLT’s Treynor Ratio is 1.82. Furthermore, the fund has a Beta of 3.54 and a Mean Return of 0.63.

TIP’s Mean Return is 0.35 points lower than that of TLT and its R-squared is 2.19 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than TLT. The Alpha and Beta of TIP are 2.25 points higher and 2.36 points lower than TLT’s Alpha and Beta.

Performance

Annual Returns

TIP vs. TLT - Annual Returns

Year TIP TLT
2020 10.91% 17.92%
2019 8.28% 14.93%
2018 -1.43% -2.07%
2017 2.92% 8.92%
2016 4.56% 1.36%
2015 -1.59% -1.65%
2014 3.49% 27.35%
2013 -8.65% -13.91%
2012 6.8% 3.25%
2011 13.4% 33.6%
2010 6.1% 9.25%

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 2011 was the strongest year for TLT, returning 33.6% on an annual basis. The poorest year for TLT in the last ten years was 2013, with a yield of -13.91%. Most years the iShares 20+ Year Treasury Bond ETF has given investors modest returns, such as in 2012, 2017, and 2010, when gains were 3.25%, 8.92%, and 9.25% respectively.

Portfolio Growth

TIP vs. TLT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
TLT $10,000 $23,809 9.00%

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 TLT, the end total would have been $23,809. This equates to a $13,809 profit over 11 years and a compound annual growth rate (CAGR) of 9.00%.

TIP’s CAGR is 4.92 percentage points lower than that of TLT and as a result, would have yielded $8,580 less on a $10,000 investment. Thus, TIP performed worse than TLT by 4.92% annually.


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