The iShares TIPS Bond ETF (TIP) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between TIP and VMBS? And which fund is better?
The expense ratio of TIP is 0.14 percentage points higher than VMBS’s (0.19% vs. 0.05%). TIP is mostly comprised of AAA bonds and VMBS has a high exposure to AAA bond. Overall, TIP has provided higher returns than VMBS over the past ten years.
In this article, we’ll compare TIP vs. VMBS. We’ll look at risk metrics and performance, as well as at their annual returns and industry exposure. Moreover, I’ll also discuss TIP’s and VMBS’s holdings, fund composition, and portfolio growth and examine how these affect their overall returns.
|Name||iShares TIPS Bond ETF||Vanguard Mortgage-Backed Securities Index Fund ETF Shares|
|Category||Inflation-Protected Bond||Intermediate Government|
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 Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.
TIP’s dividend yield is 0.64% higher than that of VMBS (1.87% vs. 1.23%). Also, TIP yielded on average 1.18% more per year over the past decade (4.07% vs. 2.89%). The expense ratio of TIP is 0.14 percentage points higher than VMBS’s (0.19% vs. 0.05%).
|TIP Bond Sectors||Weight|
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.
|VMBS Bond Sectors||Weight|
VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
The iShares TIPS Bond ETF (TIP) has a Treynor Ratio of 2.24 with a Alpha of -0.58 and a R-squared of 66.57. Its Beta is 1.18 while TIP’s Sharpe Ratio is 0.62. Furthermore, the fund has a Standard Deviation of 4.33 and a Mean Return of 0.28.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Alpha of 0.37 with a R-squared of 65.78 and a Mean Return of 0.21. Its Sharpe Ratio is 0.94 while VMBS’s Standard Deviation is 2.02. Furthermore, the fund has a Beta of 0.54 and a Treynor Ratio of 3.47.
TIP’s Mean Return is 0.07 points higher than that of VMBS and its R-squared is 0.79 points higher. With a Standard Deviation of 4.33, TIP is slightly more volatile than VMBS. The Alpha and Beta of TIP are 0.95 points lower and 0.64 points higher than VMBS’s Alpha and Beta.
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 VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in TIP would have resulted in a final balance of $14,353. This is a profit of $4,353 over 10 years and amounts to a compound annual growth rate (CAGR) of 4.07%.
With a $10,000 investment in VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.
TIP’s CAGR is 1.18 percentage points higher than that of VMBS and as a result, would have yielded $1,088 more on a $10,000 investment. Thus, TIP outperformed VMBS by 1.18% annually.
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