The iShares TIPS Bond ETF (TIP) and the Industrial Select Sector SPDR Fund (XLI) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and XLI is a SPDR State Street Global Advisors Industrials fund. So, what’s the difference between TIP and XLI? And which fund is better?
The expense ratio of TIP is 0.07 percentage points higher than XLI’s (0.19% vs. 0.12%). TIP is mostly comprised of AAA bonds while XLI has a high exposure to the industrials sector. Overall, TIP has provided lower returns than XLI over the past ten years.
In this article, we’ll compare TIP vs. XLI. We’ll look at annual returns and risk metrics, as well as at their industry exposure and holdings. Moreover, I’ll also discuss TIP’s and XLI’s performance, portfolio growth, and fund composition and examine how these affect their overall returns.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
Summary
| TIP | XLI | |
| Name | iShares TIPS Bond ETF | Industrial Select Sector SPDR Fund |
| Category | Inflation-Protected Bond | Industrials |
| Issuer | iShares | SPDR State Street Global Advisors |
| AUM | 28.3B | 19.33B |
| Avg. Return | 4.07% | 14.44% |
| Div. Yield | 1.87% | 1.25% |
| 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 Industrial Select Sector SPDR Fund (XLI) is a Industrials fund that is issued by SPDR State Street Global Advisors. It currently has 19.33B total assets under management and has yielded an average annual return of 14.44% over the past 10 years. The fund has a dividend yield of 1.25% with an expense ratio of 0.12%.
TIP’s dividend yield is 0.62% higher than that of XLI (1.87% vs. 1.25%). Also, TIP yielded on average 10.37% less per year over the past decade (4.07% vs. 14.44%). The expense ratio of TIP is 0.07 percentage points higher than XLI’s (0.19% vs. 0.12%).
FYI: The best way I've found to invest is through M1 Finance. It's free and you even get an instant line of credit and 100$! Have a look here (link to M1 Finance).
Fund Composition
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.
| XLI Holdings | Weight |
| Honeywell International Inc | 4.9% |
| United Parcel Service Inc Class B | 4.84% |
| Union Pacific Corp | 4.7% |
| Boeing Co | 4.24% |
| Raytheon Technologies Corp | 4.16% |
| Caterpillar Inc | 3.84% |
| General Electric Co | 3.8% |
| 3M Co | 3.7% |
| Deere & Co | 3.54% |
| Lockheed Martin Corp | 2.98% |
XLI’s Top Holdings are Honeywell International Inc, United Parcel Service Inc Class B, Union Pacific Corp, Boeing Co, and Raytheon Technologies Corp at 4.9%, 4.84%, 4.7%, 4.24%, and 4.16%.
Caterpillar Inc (3.84%), General Electric Co (3.8%), and 3M Co (3.7%) have a slightly smaller but still significant weight. Deere & Co and Lockheed Martin Corp are also represented in the XLI’s holdings at 3.54% and 2.98%.
Risk Analysis
| TIP | XLI | |
| Mean Return | 0.28 | 1.14 |
| R-squared | 66.57 | 78.97 |
| Std. Deviation | 4.33 | 17.13 |
| Alpha | -0.58 | 2.38 |
| Beta | 1.18 | 1.08 |
| Sharpe Ratio | 0.62 | 0.76 |
| Treynor Ratio | 2.24 | 11.34 |
The iShares TIPS Bond ETF (TIP) has a Beta of 1.18 with a Standard Deviation of 4.33 and a R-squared of 66.57. Its Mean Return is 0.28 while TIP’s Alpha is -0.58. Furthermore, the fund has a Sharpe Ratio of 0.62 and a Treynor Ratio of 2.24.
The Industrial Select Sector SPDR Fund (XLI) has a Standard Deviation of 17.13 with a Sharpe Ratio of 0.76 and a R-squared of 78.97. Its Alpha is 2.38 while XLI’s Treynor Ratio is 11.34. Furthermore, the fund has a Beta of 1.08 and a Mean Return of 1.14.
TIP’s Mean Return is 0.86 points lower than that of XLI and its R-squared is 12.40 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than XLI. The Alpha and Beta of TIP are 2.96 points lower and 0.10 points higher than XLI’s Alpha and Beta.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
Performance
Annual Returns
| Year | TIP | XLI |
| 2020 | 10.91% | 11.0% |
| 2019 | 8.28% | 29.11% |
| 2018 | -1.43% | -13.1% |
| 2017 | 2.92% | 23.85% |
| 2016 | 4.56% | 19.93% |
| 2015 | -1.59% | -4.27% |
| 2014 | 3.49% | 10.44% |
| 2013 | -8.65% | 40.44% |
| 2012 | 6.8% | 14.86% |
| 2011 | 13.4% | -1.01% |
| 2010 | 6.1% | 27.62% |
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 XLI, returning 40.44% on an annual basis. The poorest year for XLI in the last ten years was 2018, with a yield of -13.1%. Most years the Industrial Select Sector SPDR Fund has given investors modest returns, such as in 2020, 2012, and 2016, when gains were 11.0%, 14.86%, and 19.93% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| TIP | $10,000 | $15,229 | 4.07% |
| XLI | $10,000 | $39,853 | 14.44% |
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 XLI, the end total would have been $39,853. This equates to a $29,853 profit over 11 years and a compound annual growth rate (CAGR) of 14.44%.
TIP’s CAGR is 10.37 percentage points lower than that of XLI and as a result, would have yielded $24,624 less on a $10,000 investment. Thus, TIP performed worse than XLI by 10.37% annually.
Current recommendations:
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.
I believe that money is just a means to an end: to be free to spend your time as you wish, to maximize your positive impact on the world.
