VEU vs. TIP: What’s The Difference?

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) and the iShares TIPS Bond ETF (TIP) are both among the Top 100 ETFs. VEU is a Vanguard Foreign Large Blend fund and TIP is a iShares Inflation-Protected Bond fund. So, what’s the difference between VEU and TIP? And which fund is better?

The expense ratio of VEU is 0.11 percentage points lower than TIP’s (0.08% vs. 0.19%). VEU also has a high exposure to the financial services sector while TIP is mostly comprised of AAA bonds. Overall, VEU has provided higher returns than TIP over the past ten years.

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

Summary

VEU TIP
Name Vanguard FTSE All-World ex-US Index Fund ETF Shares iShares TIPS Bond ETF
Category Foreign Large Blend Inflation-Protected Bond
Issuer Vanguard iShares
AUM 53.64B 28.3B
Avg. Return 6.64% 4.07%
Div. Yield 2.31% 1.87%
Expense Ratio 0.08% 0.19%

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) is a Foreign Large Blend fund that is issued by Vanguard. It currently has 53.64B total assets under management and has yielded an average annual return of 6.64% over the past 10 years. The fund has a dividend yield of 2.31% with an expense ratio of 0.08%.

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%.

VEU’s dividend yield is 0.44% higher than that of TIP (2.31% vs. 1.87%). Also, VEU yielded on average 2.57% more per year over the past decade (6.64% vs. 4.07%). The expense ratio of VEU is 0.11 percentage points lower than TIP’s (0.08% vs. 0.19%).

Fund Composition

Holdings

VEU - Holdings

VEU Holdings Weight
Tencent Holdings Ltd 1.57%
Alibaba Group Holding Ltd Ordinary Shares 1.4%
Nestle SA 1.22%
Taiwan Semiconductor Manufacturing Co Ltd 0.98%
ASML Holding NV 0.95%
Taiwan Semiconductor Manufacturing Co Ltd ADR 0.91%
Roche Holding AG 0.91%
Toyota Motor Corp 0.75%
LVMH Moet Hennessy Louis Vuitton SE 0.68%
Novartis AG 0.67%

VEU’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Nestle SA, Taiwan Semiconductor Manufacturing Co Ltd, and ASML Holding NV at 1.57%, 1.4%, 1.22%, 0.98%, and 0.95%.

Taiwan Semiconductor Manufacturing Co Ltd ADR (0.91%), Roche Holding AG (0.91%), and Toyota Motor Corp (0.75%) have a slightly smaller but still significant weight. LVMH Moet Hennessy Louis Vuitton SE and Novartis AG are also represented in the VEU’s holdings at 0.68% and 0.67%.

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

VEU TIP
Mean Return 0.56 0.28
R-squared 98.44 66.57
Std. Deviation 15.08 4.33
Alpha 0.28 -0.58
Beta 0.99 1.18
Sharpe Ratio 0.4 0.62
Treynor Ratio 5.12 2.24

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has a Standard Deviation of 15.08 with a R-squared of 98.44 and a Mean Return of 0.56. Its Treynor Ratio is 5.12 while VEU’s Alpha is 0.28. Furthermore, the fund has a Beta of 0.99 and a Sharpe Ratio of 0.4.

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

VEU’s Mean Return is 0.28 points higher than that of TIP and its R-squared is 31.87 points higher. With a Standard Deviation of 15.08, VEU is slightly more volatile than TIP. The Alpha and Beta of VEU are 0.86 points higher and 0.19 points lower than TIP’s Alpha and Beta.

Performance

Annual Returns

VEU vs. TIP - Annual Returns

Year VEU TIP
2020 11.39% 10.91%
2019 21.63% 8.28%
2018 -13.97% -1.43%
2017 27.27% 2.92%
2016 4.77% 4.56%
2015 -4.67% -1.59%
2014 -4.05% 3.49%
2013 14.5% -8.65%
2012 18.55% 6.8%
2011 -14.25% 13.4%
2010 11.85% 6.1%

VEU had its best year in 2017 with an annual return of 27.27%. VEU’s worst year over the past decade yielded -14.25% and occurred in 2011. In most years the Vanguard FTSE All-World ex-US Index Fund ETF Shares provided moderate returns such as in 2016, 2020, and 2010 where annual returns amounted to 4.77%, 11.39%, and 11.85% 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

VEU vs. TIP - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VEU $10,000 $18,507 6.64%
TIP $10,000 $15,229 4.07%

A $10,000 investment in VEU would have resulted in a final balance of $18,507. This is a profit of $8,507 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.64%.

With a $10,000 investment in TIP, the end total would have been $15,229. This equates to a $5,229 profit over 11 years and a compound annual growth rate (CAGR) of 4.07%.

VEU’s CAGR is 2.57 percentage points higher than that of TIP and as a result, would have yielded $3,278 more on a $10,000 investment. Thus, VEU outperformed TIP by 2.57% annually.


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