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TIP vs. XLY: What’s The Difference?

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

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

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

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Summary

TIPXLY
NameiShares TIPS Bond ETFConsumer Discretionary Select Sector SPDR Fund
CategoryInflation-Protected BondConsumer Cyclical
IssueriSharesSPDR State Street Global Advisors
AUM28.3B20.21B
Avg. Return4.07%18.86%
Div. Yield1.87%0.63%
Expense Ratio0.19%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 Consumer Discretionary Select Sector SPDR Fund (XLY) is a Consumer Cyclical fund that is issued by SPDR State Street Global Advisors. It currently has 20.21B total assets under management and has yielded an average annual return of 18.86% over the past 10 years. The fund has a dividend yield of 0.63% with an expense ratio of 0.12%.

TIP’s dividend yield is 1.24% higher than that of XLY (1.87% vs. 0.63%). Also, TIP yielded on average 14.79% less per year over the past decade (4.07% vs. 18.86%). The expense ratio of TIP is 0.07 percentage points higher than XLY’s (0.19% vs. 0.12%).

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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.

XLY - Holdings

XLY HoldingsWeight
Amazon.com Inc22.9%
Tesla Inc13.5%
The Home Depot Inc8.74%
McDonald’s Corp4.5%
Nike Inc B4.45%
Lowe’s Companies Inc3.58%
Starbucks Corp3.44%
Target Corp3.12%
Booking Holdings Inc2.35%
TJX Companies Inc2.12%

XLY’s Top Holdings are Amazon.com Inc, Tesla Inc, The Home Depot Inc, McDonald’s Corp, and Nike Inc B at 22.9%, 13.5%, 8.74%, 4.5%, and 4.45%.

Lowe’s Companies Inc (3.58%), Starbucks Corp (3.44%), and Target Corp (3.12%) have a slightly smaller but still significant weight. Booking Holdings Inc and TJX Companies Inc are also represented in the XLY’s holdings at 2.35% and 2.12%.

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Risk Analysis

TIPXLY
Mean Return0.281.47
R-squared66.5780.84
Std. Deviation4.3315.97
Alpha-0.586.96
Beta1.181.02
Sharpe Ratio0.621.06
Treynor Ratio2.2416.69

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

The Consumer Discretionary Select Sector SPDR Fund (XLY) has a Alpha of 6.96 with a Standard Deviation of 15.97 and a R-squared of 80.84. Its Mean Return is 1.47 while XLY’s Sharpe Ratio is 1.06. Furthermore, the fund has a Treynor Ratio of 16.69 and a Beta of 1.02.

TIP’s Mean Return is 1.19 points lower than that of XLY and its R-squared is 14.27 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than XLY. The Alpha and Beta of TIP are 7.54 points lower and 0.16 points higher than XLY’s Alpha and Beta.

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Performance

Annual Returns

TIP vs. XLY - Annual Returns

YearTIPXLY
202010.91%29.66%
20198.28%28.43%
2018-1.43%1.66%
20172.92%22.77%
20164.56%5.87%
2015-1.59%9.93%
20143.49%9.49%
2013-8.65%42.74%
20126.8%23.6%
201113.4%5.98%
20106.1%27.36%

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 XLY, returning 42.74% on an annual basis. The poorest year for XLY in the last ten years was 2018, with a yield of 1.66%. Most years the Consumer Discretionary Select Sector SPDR Fund has given investors modest returns, such as in 2015, 2017, and 2012, when gains were 9.93%, 22.77%, and 23.6% respectively.

Portfolio Growth

TIP vs. XLY - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
TIP$10,000$15,2294.07%
XLY$10,000$63,06618.86%

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 XLY, the end total would have been $63,066. This equates to a $53,066 profit over 11 years and a compound annual growth rate (CAGR) of 18.86%.

TIP’s CAGR is 14.79 percentage points lower than that of XLY and as a result, would have yielded $47,837 less on a $10,000 investment. Thus, TIP performed worse than XLY by 14.79% annually.


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