TIP vs. XLV: What’s The Difference?

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

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

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

Summary

TIP XLV
Name iShares TIPS Bond ETF Health Care Select Sector SPDR Fund
Category Inflation-Protected Bond Health
Issuer iShares SPDR State Street Global Advisors
AUM 28.3B 27.88B
Avg. Return 4.07% 15.02%
Div. Yield 1.87% 1.4%
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 Health Care Select Sector SPDR Fund (XLV) is a Health fund that is issued by SPDR State Street Global Advisors. It currently has 27.88B total assets under management and has yielded an average annual return of 15.02% over the past 10 years. The fund has a dividend yield of 1.4% with an expense ratio of 0.12%.

TIP’s dividend yield is 0.47% higher than that of XLV (1.87% vs. 1.4%). Also, TIP yielded on average 10.95% less per year over the past decade (4.07% vs. 15.02%). The expense ratio of TIP is 0.07 percentage points higher than XLV’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.

XLV - Holdings

XLV Holdings Weight
Johnson & Johnson 9.19%
UnitedHealth Group Inc 8.01%
Pfizer Inc 4.64%
Abbott Laboratories 4.36%
AbbVie Inc 4.21%
Thermo Fisher Scientific Inc 4.2%
Merck & Co Inc 4.17%
Eli Lilly and Co 3.87%
Danaher Corp 3.61%
Medtronic PLC 3.54%

XLV’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and AbbVie Inc at 9.19%, 8.01%, 4.64%, 4.36%, and 4.21%.

Thermo Fisher Scientific Inc (4.2%), Merck & Co Inc (4.17%), and Eli Lilly and Co (3.87%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the XLV’s holdings at 3.61% and 3.54%.

Risk Analysis

TIP XLV
Mean Return 0.28 1.27
R-squared 66.57 58.19
Std. Deviation 4.33 12.94
Alpha -0.58 7.75
Beta 1.18 0.7
Sharpe Ratio 0.62 1.13
Treynor Ratio 2.24 21.1

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

The Health Care Select Sector SPDR Fund (XLV) has a Alpha of 7.75 with a R-squared of 58.19 and a Standard Deviation of 12.94. Its Treynor Ratio is 21.1 while XLV’s Beta is 0.7. Furthermore, the fund has a Mean Return of 1.27 and a Sharpe Ratio of 1.13.

TIP’s Mean Return is 0.99 points lower than that of XLV and its R-squared is 8.38 points higher. With a Standard Deviation of 4.33, TIP is slightly less volatile than XLV. The Alpha and Beta of TIP are 8.33 points lower and 0.48 points higher than XLV’s Alpha and Beta.

Performance

Annual Returns

TIP vs. XLV - Annual Returns

Year TIP XLV
2020 10.91% 13.33%
2019 8.28% 20.63%
2018 -1.43% 6.3%
2017 2.92% 21.7%
2016 4.56% -2.83%
2015 -1.59% 6.82%
2014 3.49% 25.17%
2013 -8.65% 41.24%
2012 6.8% 17.56%
2011 13.4% 12.44%
2010 6.1% 2.91%

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 XLV, returning 41.24% on an annual basis. The poorest year for XLV in the last ten years was 2016, with a yield of -2.83%. Most years the Health Care Select Sector SPDR Fund has given investors modest returns, such as in 2011, 2020, and 2012, when gains were 12.44%, 13.33%, and 17.56% respectively.

Portfolio Growth

TIP vs. XLV - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
XLV $10,000 $44,147 15.02%

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 XLV, the end total would have been $44,147. This equates to a $34,147 profit over 11 years and a compound annual growth rate (CAGR) of 15.02%.

TIP’s CAGR is 10.95 percentage points lower than that of XLV and as a result, would have yielded $28,918 less on a $10,000 investment. Thus, TIP performed worse than XLV by 10.95% annually.


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