TIP vs. XLI: What’s The Difference?

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.

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%).

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.

XLI - Holdings

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.

Performance

Annual Returns

TIP vs. XLI - 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

TIP vs. XLI - 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.


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