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TIP vs. VTIP: What’s The Difference?

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

The expense ratio of TIP is 0.14 percentage points higher than VTIP’s (0.19% vs. 0.05%). TIP is mostly comprised of AAA bonds and VTIP has a high exposure to AAA bond. Overall, TIP has provided higher returns than VTIP over the past ten years.

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

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Summary

TIPVTIP
NameiShares TIPS Bond ETFVanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares
CategoryInflation-Protected BondInflation-Protected Bond
IssueriSharesVanguard
AUM28.3B50.67B
Avg. Return4.07%1.79%
Div. Yield1.87%1.35%
Expense Ratio0.19%0.05%

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 Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) is a Inflation-Protected Bond fund that is issued by Vanguard. It currently has 50.67B total assets under management and has yielded an average annual return of 1.79% over the past 10 years. The fund has a dividend yield of 1.35% with an expense ratio of 0.05%.

TIP’s dividend yield is 0.52% higher than that of VTIP (1.87% vs. 1.35%). Also, TIP yielded on average 2.28% more per year over the past decade (4.07% vs. 1.79%). The expense ratio of TIP is 0.14 percentage points higher than VTIP’s (0.19% vs. 0.05%).

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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.

VTIP - Holdings

VTIP Bond SectorsWeight
AAA99.87%
Others0.13%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

VTIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.87%, 0.13%, 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.

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Risk Analysis

TIPVTIP
Mean Return0.280
R-squared66.570
Std. Deviation4.330
Alpha-0.580
Beta1.180
Sharpe Ratio0.620
Treynor Ratio2.240

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

The Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) has a Sharpe Ratio of 0 with a Treynor Ratio of 0 and a Standard Deviation of 0. Its R-squared is 0 while VTIP’s Mean Return is 0. Furthermore, the fund has a Beta of 0 and a Alpha of 0.

TIP’s Mean Return is 0.28 points higher than that of VTIP and its R-squared is 66.57 points higher. With a Standard Deviation of 4.33, TIP is slightly more volatile than VTIP. The Alpha and Beta of TIP are 0.58 points lower and 1.18 points higher than VTIP’s Alpha and Beta.

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Performance

Annual Returns

TIP vs. VTIP - Annual Returns

YearTIPVTIP
202010.91%4.97%
20198.28%4.83%
2018-1.43%0.54%
20172.92%0.82%
20164.56%2.71%
2015-1.59%-0.15%
20143.49%-1.17%
2013-8.65%-1.55%
20126.8%0.0%
201113.4%0.0%
20106.1%0.0%

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 2020 was the strongest year for VTIP, returning 4.97% on an annual basis. The poorest year for VTIP in the last ten years was 2013, with a yield of -1.55%. Most years the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares has given investors modest returns, such as in 2011, 2010, and 2018, when gains were 0.0%, 0.0%, and 0.54% respectively.

Portfolio Growth

TIP vs. VTIP - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
TIP$10,000$12,9734.07%
VTIP$10,000$11,3051.79%

A $10,000 investment in TIP would have resulted in a final balance of $12,973. This is a profit of $2,973 over 7 years and amounts to a compound annual growth rate (CAGR) of 4.07%.

With a $10,000 investment in VTIP, the end total would have been $11,305. This equates to a $1,305 profit over 7 years and a compound annual growth rate (CAGR) of 1.79%.

TIP’s CAGR is 2.28 percentage points higher than that of VTIP and as a result, would have yielded $1,668 more on a $10,000 investment. Thus, TIP outperformed VTIP by 2.28% annually.


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