The Vanguard Information Technology Index Fund ETF Shares (VGT) and the iShares TIPS Bond ETF (TIP) are both among the Top 100 ETFs. VGT is a Vanguard Technology fund and TIP is a iShares Inflation-Protected Bond fund. So, what’s the difference between VGT and TIP? And which fund is better?
The expense ratio of VGT is 0.09 percentage points lower than TIP’s (0.1% vs. 0.19%). VGT also has a high exposure to the technology sector while TIP is mostly comprised of AAA bonds. Overall, VGT has provided higher returns than TIP over the past ten years.
In this article, we’ll compare VGT vs. TIP. We’ll look at fund composition and risk metrics, as well as at their industry exposure and performance. Moreover, I’ll also discuss VGT’s and TIP’s portfolio growth, annual returns, and holdings and examine how these affect their overall returns.
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Summary
| VGT | TIP | |
| Name | Vanguard Information Technology Index Fund ETF Shares | iShares TIPS Bond ETF |
| Category | Technology | Inflation-Protected Bond |
| Issuer | Vanguard | iShares |
| AUM | 54.13B | 28.3B |
| Avg. Return | 20.84% | 4.07% |
| Div. Yield | 0.66% | 1.87% |
| Expense Ratio | 0.1% | 0.19% |
The Vanguard Information Technology Index Fund ETF Shares (VGT) is a Technology fund that is issued by Vanguard. It currently has 54.13B total assets under management and has yielded an average annual return of 20.84% over the past 10 years. The fund has a dividend yield of 0.66% with an expense ratio of 0.1%.
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%.
VGT’s dividend yield is 1.21% lower than that of TIP (0.66% vs. 1.87%). Also, VGT yielded on average 16.76% more per year over the past decade (20.84% vs. 4.07%). The expense ratio of VGT is 0.09 percentage points lower than TIP’s (0.1% vs. 0.19%).
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Fund Composition
Holdings
| VGT Holdings | Weight |
| Apple Inc | 19.58% |
| Microsoft Corp | 16.53% |
| NVIDIA Corp | 4.22% |
| Visa Inc Class A | 3.16% |
| PayPal Holdings Inc | 2.76% |
| Mastercard Inc Class A | 2.76% |
| Adobe Inc | 2.39% |
| Intel Corp | 1.94% |
| Salesforce.com Inc | 1.91% |
| Cisco Systems Inc | 1.9% |
VGT’s Top Holdings are Apple Inc, Microsoft Corp, NVIDIA Corp, Visa Inc Class A, and PayPal Holdings Inc at 19.58%, 16.53%, 4.22%, 3.16%, and 2.76%.
Mastercard Inc Class A (2.76%), Adobe Inc (2.39%), and Intel Corp (1.94%) have a slightly smaller but still significant weight. Salesforce.com Inc and Cisco Systems Inc are also represented in the VGT’s holdings at 1.91% and 1.9%.
| 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
| VGT | TIP | |
| Mean Return | 1.76 | 0.28 |
| R-squared | 74.84 | 66.57 |
| Std. Deviation | 16.61 | 4.33 |
| Alpha | 10.41 | -0.58 |
| Beta | 1.02 | 1.18 |
| Sharpe Ratio | 1.23 | 0.62 |
| Treynor Ratio | 20.55 | 2.24 |
The Vanguard Information Technology Index Fund ETF Shares (VGT) has a Standard Deviation of 16.61 with a R-squared of 74.84 and a Beta of 1.02. Its Sharpe Ratio is 1.23 while VGT’s Alpha is 10.41. Furthermore, the fund has a Mean Return of 1.76 and a Treynor Ratio of 20.55.
The iShares TIPS Bond ETF (TIP) has a Mean Return of 0.28 with a Treynor Ratio of 2.24 and a Standard Deviation of 4.33. Its Sharpe Ratio is 0.62 while TIP’s Beta is 1.18. Furthermore, the fund has a R-squared of 66.57 and a Alpha of -0.58.
VGT’s Mean Return is 1.48 points higher than that of TIP and its R-squared is 8.27 points higher. With a Standard Deviation of 16.61, VGT is slightly more volatile than TIP. The Alpha and Beta of VGT are 10.99 points higher and 0.16 points lower than TIP’s Alpha and Beta.
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Performance
Annual Returns
| Year | VGT | TIP |
| 2020 | 45.94% | 10.91% |
| 2019 | 48.68% | 8.28% |
| 2018 | 2.52% | -1.43% |
| 2017 | 37.07% | 2.92% |
| 2016 | 13.73% | 4.56% |
| 2015 | 5.02% | -1.59% |
| 2014 | 18.01% | 3.49% |
| 2013 | 30.91% | -8.65% |
| 2012 | 14.05% | 6.8% |
| 2011 | 0.52% | 13.4% |
| 2010 | 12.74% | 6.1% |
VGT had its best year in 2019 with an annual return of 48.68%. VGT’s worst year over the past decade yielded 0.52% and occurred in 2011. In most years the Vanguard Information Technology Index Fund ETF Shares provided moderate returns such as in 2016, 2012, and 2014 where annual returns amounted to 13.73%, 14.05%, and 18.01% 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 |
| VGT | $10,000 | $72,718 | 20.84% |
| TIP | $10,000 | $15,229 | 4.07% |
A $10,000 investment in VGT would have resulted in a final balance of $72,718. This is a profit of $62,718 over 11 years and amounts to a compound annual growth rate (CAGR) of 20.84%.
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%.
VGT’s CAGR is 16.76 percentage points higher than that of TIP and as a result, would have yielded $57,489 more on a $10,000 investment. Thus, VGT outperformed TIP by 16.76% annually.
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