TIP vs. VT: What’s The Difference?

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

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

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

Summary

TIP VT
Name iShares TIPS Bond ETF Vanguard Total World Stock Index Fund ETF Shares
Category Inflation-Protected Bond N/A
Issuer iShares Vanguard
AUM 28.3B 30.44B
Avg. Return 4.07% 10.42%
Div. Yield 1.87% 1.65%
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 Total World Stock Index Fund ETF Shares (VT) is a N/A fund that is issued by Vanguard. It currently has 30.44B total assets under management and has yielded an average annual return of 10.42% over the past 10 years. The fund has a dividend yield of 1.65% with an expense ratio of 0.08%.

TIP’s dividend yield is 0.22% higher than that of VT (1.87% vs. 1.65%). Also, TIP yielded on average 6.34% less per year over the past decade (4.07% vs. 10.42%). The expense ratio of TIP is 0.11 percentage points higher than VT’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.

VT - Holdings

VT Holdings Weight
Apple Inc 2.85%
Microsoft Corp 2.71%
Amazon.com Inc 1.98%
Facebook Inc Class A 1.1%
Alphabet Inc Class A 0.97%
Alphabet Inc Class C 0.95%
Tesla Inc 0.7%
NVIDIA Corp 0.64%
JPMorgan Chase & Co 0.62%
Tencent Holdings Ltd 0.6%

VT’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, and Alphabet Inc Class A at 2.85%, 2.71%, 1.98%, 1.1%, and 0.97%.

Alphabet Inc Class C (0.95%), Tesla Inc (0.7%), and NVIDIA Corp (0.64%) have a slightly smaller but still significant weight. JPMorgan Chase & Co and Tencent Holdings Ltd are also represented in the VT’s holdings at 0.62% and 0.6%.

Risk Analysis

TIP VT
Mean Return 0.28 0.9
R-squared 66.57 99.35
Std. Deviation 4.33 14.19
Alpha -0.58 0.2
Beta 1.18 1.01
Sharpe Ratio 0.62 0.71
Treynor Ratio 2.24 9.5

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

The Vanguard Total World Stock Index Fund ETF Shares (VT) has a Mean Return of 0.9 with a Beta of 1.01 and a R-squared of 99.35. Its Sharpe Ratio is 0.71 while VT’s Alpha is 0.2. Furthermore, the fund has a Standard Deviation of 14.19 and a Treynor Ratio of 9.5.

TIP’s Mean Return is 0.62 points lower than that of VT and its R-squared is 32.78 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than VT. The Alpha and Beta of TIP are 0.78 points lower and 0.17 points higher than VT’s Alpha and Beta.

Performance

Annual Returns

TIP vs. VT - Annual Returns

Year TIP VT
2020 10.91% 16.74%
2019 8.28% 26.8%
2018 -1.43% -9.67%
2017 2.92% 24.19%
2016 4.56% 8.77%
2015 -1.59% -1.88%
2014 3.49% 3.97%
2013 -8.65% 22.98%
2012 6.8% 17.33%
2011 13.4% -7.71%
2010 6.1% 13.05%

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 VT, returning 26.8% on an annual basis. The poorest year for VT in the last ten years was 2018, with a yield of -9.67%. Most years the Vanguard Total World Stock Index Fund ETF Shares has given investors modest returns, such as in 2016, 2010, and 2020, when gains were 8.77%, 13.05%, and 16.74% respectively.

Portfolio Growth

TIP vs. VT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
VT $10,000 $27,739 10.42%

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 VT, the end total would have been $27,739. This equates to a $17,739 profit over 11 years and a compound annual growth rate (CAGR) of 10.42%.

TIP’s CAGR is 6.34 percentage points lower than that of VT and as a result, would have yielded $12,510 less on a $10,000 investment. Thus, TIP performed worse than VT by 6.34% annually.


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