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TIP vs. VBR: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the Vanguard Small-Cap Value Index Fund ETF Shares (VBR) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and VBR is a Vanguard Small Value fund. So, what’s the difference between TIP and VBR? And which fund is better?

The expense ratio of TIP is 0.12 percentage points higher than VBR’s (0.19% vs. 0.07%). TIP is mostly comprised of AAA bonds while VBR has a high exposure to the financial services sector. Overall, TIP has provided lower returns than VBR over the past ten years.

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

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Summary

TIPVBR
NameiShares TIPS Bond ETFVanguard Small-Cap Value Index Fund ETF Shares
CategoryInflation-Protected BondSmall Value
IssueriSharesVanguard
AUM28.3B48.08B
Avg. Return4.07%12.28%
Div. Yield1.87%1.6%
Expense Ratio0.19%0.07%

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 Vanguard Small-Cap Value Index Fund ETF Shares (VBR) is a Small Value fund that is issued by Vanguard. It currently has 48.08B total assets under management and has yielded an average annual return of 12.28% over the past 10 years. The fund has a dividend yield of 1.6% with an expense ratio of 0.07%.

TIP’s dividend yield is 0.27% higher than that of VBR (1.87% vs. 1.6%). Also, TIP yielded on average 8.21% less per year over the past decade (4.07% vs. 12.28%). The expense ratio of TIP is 0.12 percentage points higher than VBR’s (0.19% vs. 0.07%).

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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.

VBR - Holdings

VBR HoldingsWeight
Diamondback Energy Inc0.55%
VICI Properties Inc Ordinary Shares0.54%
IDEX Corp0.54%
Nuance Communications Inc0.5%
Molina Healthcare Inc0.48%
Signature Bank0.46%
Novavax Inc0.44%
Howmet Aerospace Inc0.44%
Apollo Global Management Inc Class A0.42%
Brown & Brown Inc0.41%

VBR’s Top Holdings are Diamondback Energy Inc, VICI Properties Inc Ordinary Shares, IDEX Corp, Nuance Communications Inc, and Molina Healthcare Inc at 0.55%, 0.54%, 0.54%, 0.5%, and 0.48%.

Signature Bank (0.46%), Novavax Inc (0.44%), and Howmet Aerospace Inc (0.44%) have a slightly smaller but still significant weight. Apollo Global Management Inc Class A and Brown & Brown Inc are also represented in the VBR’s holdings at 0.42% and 0.41%.

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Risk Analysis

TIPVBR
Mean Return0.281.08
R-squared66.5782.2
Std. Deviation4.3318.37
Alpha-0.58-5.09
Beta1.181.23
Sharpe Ratio0.620.67
Treynor Ratio2.249.15

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

The Vanguard Small-Cap Value Index Fund ETF Shares (VBR) has a Alpha of -5.09 with a Treynor Ratio of 9.15 and a Mean Return of 1.08. Its Beta is 1.23 while VBR’s Standard Deviation is 18.37. Furthermore, the fund has a R-squared of 82.2 and a Sharpe Ratio of 0.67.

TIP’s Mean Return is 0.80 points lower than that of VBR and its R-squared is 15.63 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than VBR. The Alpha and Beta of TIP are 4.51 points higher and 0.05 points lower than VBR’s Alpha and Beta.

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Performance

Annual Returns

TIP vs. VBR - Annual Returns

YearTIPVBR
202010.91%5.82%
20198.28%22.76%
2018-1.43%-12.22%
20172.92%11.79%
20164.56%24.8%
2015-1.59%-4.67%
20143.49%10.55%
2013-8.65%36.57%
20126.8%18.78%
201113.4%-4.05%
20106.1%24.97%

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 VBR, returning 36.57% on an annual basis. The poorest year for VBR in the last ten years was 2018, with a yield of -12.22%. Most years the Vanguard Small-Cap Value Index Fund ETF Shares has given investors modest returns, such as in 2014, 2017, and 2012, when gains were 10.55%, 11.79%, and 18.78% respectively.

Portfolio Growth

TIP vs. VBR - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
TIP$10,000$15,2294.07%
VBR$10,000$32,61112.28%

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 VBR, the end total would have been $32,611. This equates to a $22,611 profit over 11 years and a compound annual growth rate (CAGR) of 12.28%.

TIP’s CAGR is 8.21 percentage points lower than that of VBR and as a result, would have yielded $17,382 less on a $10,000 investment. Thus, TIP performed worse than VBR by 8.21% annually.


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