TIP vs. VGK: What’s The Difference?

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

The expense ratio of TIP is 0.11 percentage points higher than VGK’s (0.19% vs. 0.08%). TIP is mostly comprised of AAA bonds while VGK has a high exposure to the financial services sector. Overall, TIP has provided lower returns than VGK over the past ten years.

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

Summary

TIP VGK
Name iShares TIPS Bond ETF Vanguard FTSE Europe Index Fund ETF Shares
Category Inflation-Protected Bond Europe Stock
Issuer iShares Vanguard
AUM 28.3B 25.7B
Avg. Return 4.07% 6.68%
Div. Yield 1.87% 2.52%
Expense Ratio 0.19% 0.08%

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 FTSE Europe Index Fund ETF Shares (VGK) is a Europe Stock fund that is issued by Vanguard. It currently has 25.7B total assets under management and has yielded an average annual return of 6.68% over the past 10 years. The fund has a dividend yield of 2.52% with an expense ratio of 0.08%.

TIP’s dividend yield is 0.65% lower than that of VGK (1.87% vs. 2.52%). Also, TIP yielded on average 2.61% less per year over the past decade (4.07% vs. 6.68%). The expense ratio of TIP is 0.11 percentage points higher than VGK’s (0.19% vs. 0.08%).

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.

VGK - Holdings

VGK Holdings Weight
Nestle SA 2.82%
ASML Holding NV 2.2%
Roche Holding AG 2.13%
LVMH Moet Hennessy Louis Vuitton SE 1.58%
Novartis AG 1.55%
AstraZeneca PLC 1.27%
SAP SE 1.25%
Unilever PLC 1.23%
Novo Nordisk A/S B 1.09%
Siemens AG 0.96%

VGK’s Top Holdings are Nestle SA, ASML Holding NV, Roche Holding AG, LVMH Moet Hennessy Louis Vuitton SE, and Novartis AG at 2.82%, 2.2%, 2.13%, 1.58%, and 1.55%.

AstraZeneca PLC (1.27%), SAP SE (1.25%), and Unilever PLC (1.23%) have a slightly smaller but still significant weight. Novo Nordisk A/S B and Siemens AG are also represented in the VGK’s holdings at 1.09% and 0.96%.

Risk Analysis

TIP VGK
Mean Return 0.28 0.61
R-squared 66.57 92.76
Std. Deviation 4.33 16.65
Alpha -0.58 0.45
Beta 1.18 1.06
Sharpe Ratio 0.62 0.4
Treynor Ratio 2.24 5.12

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

The Vanguard FTSE Europe Index Fund ETF Shares (VGK) has a Standard Deviation of 16.65 with a Treynor Ratio of 5.12 and a Alpha of 0.45. Its Beta is 1.06 while VGK’s Sharpe Ratio is 0.4. Furthermore, the fund has a R-squared of 92.76 and a Mean Return of 0.61.

TIP’s Mean Return is 0.33 points lower than that of VGK and its R-squared is 26.19 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than VGK. The Alpha and Beta of TIP are 1.03 points lower and 0.12 points higher than VGK’s Alpha and Beta.

Performance

Annual Returns

TIP vs. VGK - Annual Returns

Year TIP VGK
2020 10.91% 6.5%
2019 8.28% 24.26%
2018 -1.43% -14.79%
2017 2.92% 27.06%
2016 4.56% -0.59%
2015 -1.59% -1.87%
2014 3.49% -6.56%
2013 -8.65% 24.93%
2012 6.8% 21.01%
2011 13.4% -11.49%
2010 6.1% 5.01%

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 2017 was the strongest year for VGK, returning 27.06% on an annual basis. The poorest year for VGK in the last ten years was 2018, with a yield of -14.79%. Most years the Vanguard FTSE Europe Index Fund ETF Shares has given investors modest returns, such as in 2016, 2010, and 2020, when gains were -0.59%, 5.01%, and 6.5% respectively.

Portfolio Growth

TIP vs. VGK - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
VGK $10,000 $18,350 6.68%

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 VGK, the end total would have been $18,350. This equates to a $8,350 profit over 11 years and a compound annual growth rate (CAGR) of 6.68%.

TIP’s CAGR is 2.61 percentage points lower than that of VGK and as a result, would have yielded $3,121 less on a $10,000 investment. Thus, TIP performed worse than VGK by 2.61% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

3) If you are interested in crypto, check out Gemini. I've started allocating a small amount of assets to the growing crypto space and Gemini has just been a breeze to use. Once you register, make sure to also open an Active Trader account to buy crypto at the lowest fees on the market (just 0.03%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply