TIP vs. VHT: What’s The Difference?

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

The expense ratio of TIP is 0.09 percentage points higher than VHT’s (0.19% vs. 0.1%). TIP is mostly comprised of AAA bonds while VHT has a high exposure to the healthcare sector. Overall, TIP has provided lower returns than VHT over the past ten years.

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

Summary

TIP VHT
Name iShares TIPS Bond ETF Vanguard Health Care Index Fund ETF Shares
Category Inflation-Protected Bond Health
Issuer iShares Vanguard
AUM 28.3B 17.94B
Avg. Return 4.07% 16.04%
Div. Yield 1.87% 1.15%
Expense Ratio 0.19% 0.1%

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 Health Care Index Fund ETF Shares (VHT) is a Health fund that is issued by Vanguard. It currently has 17.94B total assets under management and has yielded an average annual return of 16.04% over the past 10 years. The fund has a dividend yield of 1.15% with an expense ratio of 0.1%.

TIP’s dividend yield is 0.72% higher than that of VHT (1.87% vs. 1.15%). Also, TIP yielded on average 11.97% less per year over the past decade (4.07% vs. 16.04%). The expense ratio of TIP is 0.09 percentage points higher than VHT’s (0.19% vs. 0.1%).

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.

VHT - Holdings

VHT Holdings Weight
Johnson & Johnson 7.34%
UnitedHealth Group Inc 6.44%
Pfizer Inc 3.7%
Abbott Laboratories 3.48%
Thermo Fisher Scientific Inc 3.37%
AbbVie Inc 3.37%
Merck & Co Inc 3.33%
Eli Lilly and Co 3.17%
Danaher Corp 2.91%
Medtronic PLC 2.83%

VHT’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and Thermo Fisher Scientific Inc at 7.34%, 6.44%, 3.7%, 3.48%, and 3.37%.

AbbVie Inc (3.37%), Merck & Co Inc (3.33%), and Eli Lilly and Co (3.17%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the VHT’s holdings at 2.91% and 2.83%.

Risk Analysis

TIP VHT
Mean Return 0.28 1.33
R-squared 66.57 59.86
Std. Deviation 4.33 13.58
Alpha -0.58 7.99
Beta 1.18 0.75
Sharpe Ratio 0.62 1.13
Treynor Ratio 2.24 20.74

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

The Vanguard Health Care Index Fund ETF Shares (VHT) has a Treynor Ratio of 20.74 with a Mean Return of 1.33 and a Beta of 0.75. Its Alpha is 7.99 while VHT’s Standard Deviation is 13.58. Furthermore, the fund has a Sharpe Ratio of 1.13 and a R-squared of 59.86.

TIP’s Mean Return is 1.05 points lower than that of VHT and its R-squared is 6.71 points higher. With a Standard Deviation of 4.33, TIP is slightly less volatile than VHT. The Alpha and Beta of TIP are 8.57 points lower and 0.43 points higher than VHT’s Alpha and Beta.

Performance

Annual Returns

TIP vs. VHT - Annual Returns

Year TIP VHT
2020 10.91% 18.21%
2019 8.28% 21.97%
2018 -1.43% 5.55%
2017 2.92% 23.34%
2016 4.56% -3.33%
2015 -1.59% 7.22%
2014 3.49% 25.38%
2013 -8.65% 42.67%
2012 6.8% 19.1%
2011 13.4% 10.57%
2010 6.1% 5.75%

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 VHT, returning 42.67% on an annual basis. The poorest year for VHT in the last ten years was 2016, with a yield of -3.33%. Most years the Vanguard Health Care Index Fund ETF Shares has given investors modest returns, such as in 2011, 2020, and 2012, when gains were 10.57%, 18.21%, and 19.1% respectively.

Portfolio Growth

TIP vs. VHT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
VHT $10,000 $48,464 16.04%

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 VHT, the end total would have been $48,464. This equates to a $38,464 profit over 11 years and a compound annual growth rate (CAGR) of 16.04%.

TIP’s CAGR is 11.97 percentage points lower than that of VHT and as a result, would have yielded $33,235 less on a $10,000 investment. Thus, TIP performed worse than VHT by 11.97% annually.


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