VCSH vs. TIP: What’s The Difference?

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) and the iShares TIPS Bond ETF (TIP) are both among the Top 100 ETFs. VCSH is a Vanguard Short-Term Bond fund and TIP is a iShares Inflation-Protected Bond fund. So, what’s the difference between VCSH and TIP? And which fund is better?

The expense ratio of VCSH is 0.14 percentage points lower than TIP’s (0.05% vs. 0.19%). VCSH is mostly comprised of BBB bonds and TIP has a high exposure to AAA bond. Overall, VCSH has provided lower returns than TIP over the past ten years.

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

Summary

VCSH TIP
Name Vanguard Short-Term Corporate Bond Index Fund ETF Shares iShares TIPS Bond ETF
Category Short-Term Bond Inflation-Protected Bond
Issuer Vanguard iShares
AUM 47.88B 28.3B
Avg. Return 3.12% 4.07%
Div. Yield 1.89% 1.87%
Expense Ratio 0.05% 0.19%

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) is a Short-Term Bond fund that is issued by Vanguard. It currently has 47.88B total assets under management and has yielded an average annual return of 3.12% over the past 10 years. The fund has a dividend yield of 1.89% 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%.

VCSH’s dividend yield is 0.02% higher than that of TIP (1.89% vs. 1.87%). Also, VCSH yielded on average 0.95% less per year over the past decade (3.12% vs. 4.07%). The expense ratio of VCSH is 0.14 percentage points lower than TIP’s (0.05% vs. 0.19%).

Fund Composition

Holdings

VCSH - Holdings

VCSH Bond Sectors Weight
BBB 47.49%
A 43.06%
AA 8.45%
AAA 0.95%
Below B 0.03%
Others 0.02%
B 0.0%
BB 0.0%
US Government 0.0%

VCSH’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 47.49%, 43.06%, 8.45%, 0.95%, and 0.03%. The fund is less weighted towards Others (0.02%), B (0.0%), and BB (0.0%) rated bonds.

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.

Risk Analysis

VCSH TIP
Mean Return 0.24 0.28
R-squared 37.53 66.57
Std. Deviation 2.34 4.33
Alpha 0.93 -0.58
Beta 0.48 1.18
Sharpe Ratio 0.97 0.62
Treynor Ratio 4.75 2.24

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) has a Treynor Ratio of 4.75 with a Standard Deviation of 2.34 and a Beta of 0.48. Its R-squared is 37.53 while VCSH’s Alpha is 0.93. Furthermore, the fund has a Sharpe Ratio of 0.97 and a Mean Return of 0.24.

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

VCSH’s Mean Return is 0.04 points lower than that of TIP and its R-squared is 29.04 points lower. With a Standard Deviation of 2.34, VCSH is slightly less volatile than TIP. The Alpha and Beta of VCSH are 1.51 points higher and 0.70 points lower than TIP’s Alpha and Beta.

Performance

Annual Returns

VCSH vs. TIP - Annual Returns

Year VCSH TIP
2020 5.08% 10.91%
2019 6.85% 8.28%
2018 0.91% -1.43%
2017 2.45% 2.92%
2016 2.63% 4.56%
2015 1.25% -1.59%
2014 1.96% 3.49%
2013 1.37% -8.65%
2012 5.74% 6.8%
2011 2.94% 13.4%
2010 5.51% 6.1%

VCSH had its best year in 2019 with an annual return of 6.85%. VCSH’s worst year over the past decade yielded 0.91% and occurred in 2018. In most years the Vanguard Short-Term Corporate Bond Index Fund ETF Shares provided moderate returns such as in 2017, 2016, and 2011 where annual returns amounted to 2.45%, 2.63%, and 2.94% 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

VCSH vs. TIP - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCSH $10,000 $13,569 3.12%
TIP $10,000 $14,353 4.07%

A $10,000 investment in VCSH would have resulted in a final balance of $13,569. This is a profit of $3,569 over 10 years and amounts to a compound annual growth rate (CAGR) of 3.12%.

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%.

VCSH’s CAGR is 0.95 percentage points lower than that of TIP and as a result, would have yielded $784 less on a $10,000 investment. Thus, VCSH performed worse than TIP by 0.95% annually.


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