TIP vs. XLC: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the Communication Services Select Sector SPDR Fund (XLC) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and XLC is a SPDR State Street Global Advisors Communications fund. So, what’s the difference between TIP and XLC? And which fund is better?

The expense ratio of TIP is 0.07 percentage points higher than XLC’s (0.19% vs. 0.12%). TIP is mostly comprised of AAA bonds while XLC has a high exposure to the communication services sector. Overall, TIP has provided lower returns than XLC over the past ten years.

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

Summary

TIP XLC
Name iShares TIPS Bond ETF Communication Services Select Sector SPDR Fund
Category Inflation-Protected Bond Communications
Issuer iShares SPDR State Street Global Advisors
AUM 28.3B 14.09B
Avg. Return 4.07% 29.04%
Div. Yield 1.87% 0.62%
Expense Ratio 0.19% 0.12%

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 Communication Services Select Sector SPDR Fund (XLC) is a Communications fund that is issued by SPDR State Street Global Advisors. It currently has 14.09B total assets under management and has yielded an average annual return of 29.04% over the past 10 years. The fund has a dividend yield of 0.62% with an expense ratio of 0.12%.

TIP’s dividend yield is 1.25% higher than that of XLC (1.87% vs. 0.62%). Also, TIP yielded on average 24.96% less per year over the past decade (4.07% vs. 29.04%). The expense ratio of TIP is 0.07 percentage points higher than XLC’s (0.19% vs. 0.12%).

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.

XLC - Holdings

XLC Holdings Weight
Facebook Inc A 23.75%
Alphabet Inc A 11.49%
Alphabet Inc Class C 11.16%
Netflix Inc 4.78%
Charter Communications Inc A 4.65%
Comcast Corp Class A 4.44%
T-Mobile US Inc 4.41%
The Walt Disney Co 4.39%
AT&T Inc 4.35%
Verizon Communications Inc 4.33%

XLC’s Top Holdings are Facebook Inc A, Alphabet Inc A, Alphabet Inc Class C, Netflix Inc, and Charter Communications Inc A at 23.75%, 11.49%, 11.16%, 4.78%, and 4.65%.

Comcast Corp Class A (4.44%), T-Mobile US Inc (4.41%), and The Walt Disney Co (4.39%) have a slightly smaller but still significant weight. AT&T Inc and Verizon Communications Inc are also represented in the XLC’s holdings at 4.35% and 4.33%.

Risk Analysis

TIP XLC
Mean Return 0.28 0
R-squared 66.57 0
Std. Deviation 4.33 0
Alpha -0.58 0
Beta 1.18 0
Sharpe Ratio 0.62 0
Treynor Ratio 2.24 0

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

The Communication Services Select Sector SPDR Fund (XLC) has a Sharpe Ratio of 0 with a Treynor Ratio of 0 and a Beta of 0. Its Alpha is 0 while XLC’s Mean Return is 0. Furthermore, the fund has a R-squared of 0 and a Standard Deviation of 0.

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

Performance

Annual Returns

TIP vs. XLC - Annual Returns

Year TIP XLC
2020 10.91% 26.85%
2019 8.28% 31.22%
2018 -1.43% 0.0%
2017 2.92% 0.0%
2016 4.56% 0.0%
2015 -1.59% 0.0%
2014 3.49% 0.0%
2013 -8.65% 0.0%
2012 6.8% 0.0%
2011 13.4% 0.0%
2010 6.1% 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 2019 was the strongest year for XLC, returning 31.22% on an annual basis. The poorest year for XLC in the last ten years was 2018, with a yield of 0.0%. Most years the Communication Services Select Sector SPDR Fund has given investors modest returns, such as in 2014, 2013, and 2012, when gains were 0.0%, 0.0%, and 0.0% respectively.

Portfolio Growth

TIP vs. XLC - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $12,009 4.07%
XLC $10,000 $16,645 29.04%

A $10,000 investment in TIP would have resulted in a final balance of $12,009. This is a profit of $2,009 over 2 years and amounts to a compound annual growth rate (CAGR) of 4.07%.

With a $10,000 investment in XLC, the end total would have been $16,645. This equates to a $6,645 profit over 2 years and a compound annual growth rate (CAGR) of 29.04%.

TIP’s CAGR is 24.96 percentage points lower than that of XLC and as a result, would have yielded $4,636 less on a $10,000 investment. Thus, TIP performed worse than XLC by 24.96% annually.


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