The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) and the iShares TIPS Bond ETF (TIP) are both among the Top 100 ETFs. VCIT is a Vanguard Corporate Bond fund and TIP is a iShares Inflation-Protected Bond fund. So, what’s the difference between VCIT and TIP? And which fund is better?
The expense ratio of VCIT is 0.14 percentage points lower than TIP’s (0.05% vs. 0.19%). VCIT is mostly comprised of BBB bonds and TIP has a high exposure to AAA bond. Overall, VCIT has provided higher returns than TIP over the past ten years.
In this article, we’ll compare VCIT vs. TIP. We’ll look at annual returns and performance, as well as at their industry exposure and fund composition. Moreover, I’ll also discuss VCIT’s and TIP’s risk metrics, holdings, and portfolio growth and examine how these affect their overall returns.
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Summary
| VCIT | TIP | |
| Name | Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares | iShares TIPS Bond ETF |
| Category | Corporate Bond | Inflation-Protected Bond |
| Issuer | Vanguard | iShares |
| AUM | 48.39B | 28.3B |
| Avg. Return | 5.84% | 4.07% |
| Div. Yield | 2.33% | 1.87% |
| Expense Ratio | 0.05% | 0.19% |
The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) is a Corporate Bond fund that is issued by Vanguard. It currently has 48.39B total assets under management and has yielded an average annual return of 5.84% over the past 10 years. The fund has a dividend yield of 2.33% with an expense ratio of 0.05%.
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%.
VCIT’s dividend yield is 0.46% higher than that of TIP (2.33% vs. 1.87%). Also, VCIT yielded on average 1.77% more per year over the past decade (5.84% vs. 4.07%). The expense ratio of VCIT is 0.14 percentage points lower than TIP’s (0.05% vs. 0.19%).
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Fund Composition
Holdings
| VCIT Bond Sectors | Weight |
| BBB | 55.28% |
| A | 37.85% |
| AA | 5.22% |
| AAA | 1.57% |
| Below B | 0.08% |
| Others | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| US Government | 0.0% |
VCIT’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 55.28%, 37.85%, 5.22%, 1.57%, and 0.08%. The fund is less weighted towards Others (0.0%), B (0.0%), and BB (0.0%) rated bonds.
| 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.
Risk Analysis
| VCIT | TIP | |
| Mean Return | 0.44 | 0.28 |
| R-squared | 63.18 | 66.57 |
| Std. Deviation | 5.08 | 4.33 |
| Alpha | 0.89 | -0.58 |
| Beta | 1.35 | 1.18 |
| Sharpe Ratio | 0.91 | 0.62 |
| Treynor Ratio | 3.43 | 2.24 |
The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) has a Treynor Ratio of 3.43 with a Alpha of 0.89 and a Mean Return of 0.44. Its Sharpe Ratio is 0.91 while VCIT’s R-squared is 63.18. Furthermore, the fund has a Standard Deviation of 5.08 and a Beta of 1.35.
The iShares TIPS Bond ETF (TIP) has a Standard Deviation of 4.33 with a Alpha of -0.58 and a Sharpe Ratio of 0.62. Its Mean Return is 0.28 while TIP’s R-squared is 66.57. Furthermore, the fund has a Beta of 1.18 and a Treynor Ratio of 2.24.
VCIT’s Mean Return is 0.16 points higher than that of TIP and its R-squared is 3.39 points lower. With a Standard Deviation of 5.08, VCIT is slightly more volatile than TIP. The Alpha and Beta of VCIT are 1.47 points higher and 0.17 points higher than TIP’s Alpha and Beta.
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Performance
Annual Returns
| Year | VCIT | TIP |
| 2020 | 9.55% | 10.91% |
| 2019 | 13.97% | 8.28% |
| 2018 | -1.75% | -1.43% |
| 2017 | 5.5% | 2.92% |
| 2016 | 5.3% | 4.56% |
| 2015 | 0.88% | -1.59% |
| 2014 | 7.47% | 3.49% |
| 2013 | -1.8% | -8.65% |
| 2012 | 11.36% | 6.8% |
| 2011 | 7.94% | 13.4% |
| 2010 | 10.65% | 6.1% |
VCIT had its best year in 2019 with an annual return of 13.97%. VCIT’s worst year over the past decade yielded -1.8% and occurred in 2013. In most years the Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares provided moderate returns such as in 2017, 2014, and 2011 where annual returns amounted to 5.5%, 7.47%, and 7.94% respectively.
The year 2011 was the strongest year for TIP, returning 13.4% on an annual basis. The poorest year for TIP in the last ten years was 2013, with a yield of -8.65%. Most years the iShares TIPS Bond ETF has given investors modest returns, such as in 2014, 2016, and 2010, when gains were 3.49%, 4.56%, and 6.1% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VCIT | $10,000 | $17,439 | 5.84% |
| TIP | $10,000 | $14,353 | 4.07% |
A $10,000 investment in VCIT would have resulted in a final balance of $17,439. This is a profit of $7,439 over 10 years and amounts to a compound annual growth rate (CAGR) of 5.84%.
With a $10,000 investment in TIP, the end total would have been $14,353. This equates to a $4,353 profit over 10 years and a compound annual growth rate (CAGR) of 4.07%.
VCIT’s CAGR is 1.77 percentage points higher than that of TIP and as a result, would have yielded $3,086 more on a $10,000 investment. Thus, VCIT outperformed TIP by 1.77% annually.
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