The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares TIPS Bond ETF (TIP) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and TIP is a iShares Inflation-Protected Bond fund. So, what’s the difference between VNQ and TIP? And which fund is better?
The expense ratio of VNQ is 0.07 percentage points lower than TIP’s (0.12% vs. 0.19%). VNQ also has a high exposure to the real estate sector while TIP is mostly comprised of AAA bonds. Overall, VNQ has provided higher returns than TIP over the past ten years.
In this article, we’ll compare VNQ vs. TIP. We’ll look at industry exposure and fund composition, as well as at their holdings and risk metrics. Moreover, I’ll also discuss VNQ’s and TIP’s portfolio growth, performance, and annual returns and examine how these affect their overall returns.
Summary
| VNQ | TIP | |
| Name | Vanguard Real Estate Index Fund ETF Shares | iShares TIPS Bond ETF |
| Category | Real Estate | Inflation-Protected Bond |
| Issuer | Vanguard | iShares |
| AUM | 77.34B | 28.3B |
| Avg. Return | 11.05% | 4.07% |
| Div. Yield | 2.34% | 1.87% |
| Expense Ratio | 0.12% | 0.19% |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) is a Real Estate fund that is issued by Vanguard. It currently has 77.34B total assets under management and has yielded an average annual return of 11.05% over the past 10 years. The fund has a dividend yield of 2.34% with an expense ratio of 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%.
VNQ’s dividend yield is 0.47% higher than that of TIP (2.34% vs. 1.87%). Also, VNQ yielded on average 6.98% more per year over the past decade (11.05% vs. 4.07%). The expense ratio of VNQ is 0.07 percentage points lower than TIP’s (0.12% vs. 0.19%).
Fund Composition
Holdings
| VNQ Holdings | Weight |
| Vanguard Real Estate II Index | 11.62% |
| American Tower Corp | 7.24% |
| Prologis Inc | 5.33% |
| Crown Castle International Corp | 5.01% |
| Equinix Inc | 4.3% |
| Public Storage | 2.85% |
| Simon Property Group Inc | 2.52% |
| Digital Realty Trust Inc | 2.49% |
| SBA Communications Corp | 2.1% |
| Welltower Inc | 2.09% |
VNQ’s Top Holdings are Vanguard Real Estate II Index, American Tower Corp, Prologis Inc, Crown Castle International Corp, and Equinix Inc at 11.62%, 7.24%, 5.33%, 5.01%, and 4.3%.
Public Storage (2.85%), Simon Property Group Inc (2.52%), and Digital Realty Trust Inc (2.49%) have a slightly smaller but still significant weight. SBA Communications Corp and Welltower Inc are also represented in the VNQ’s holdings at 2.1% and 2.09%.
| 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
| VNQ | TIP | |
| Mean Return | 0.89 | 0.28 |
| R-squared | 44.4 | 66.57 |
| Std. Deviation | 16.13 | 4.33 |
| Alpha | 2.47 | -0.58 |
| Beta | 0.76 | 1.18 |
| Sharpe Ratio | 0.62 | 0.62 |
| Treynor Ratio | 11.9 | 2.24 |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a R-squared of 44.4 with a Sharpe Ratio of 0.62 and a Beta of 0.76. Its Standard Deviation is 16.13 while VNQ’s Treynor Ratio is 11.9. Furthermore, the fund has a Alpha of 2.47 and a Mean Return of 0.89.
The iShares TIPS Bond ETF (TIP) has a Standard Deviation of 4.33 with a Alpha of -0.58 and a Treynor Ratio of 2.24. 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 Sharpe Ratio of 0.62.
VNQ’s Mean Return is 0.61 points higher than that of TIP and its R-squared is 22.17 points lower. With a Standard Deviation of 16.13, VNQ is slightly more volatile than TIP. The Alpha and Beta of VNQ are 3.05 points higher and 0.42 points lower than TIP’s Alpha and Beta.
Performance
Annual Returns
| Year | VNQ | TIP |
| 2020 | -4.72% | 10.91% |
| 2019 | 28.91% | 8.28% |
| 2018 | -5.95% | -1.43% |
| 2017 | 4.95% | 2.92% |
| 2016 | 8.53% | 4.56% |
| 2015 | 2.37% | -1.59% |
| 2014 | 30.29% | 3.49% |
| 2013 | 2.42% | -8.65% |
| 2012 | 17.67% | 6.8% |
| 2011 | 8.62% | 13.4% |
| 2010 | 28.44% | 6.1% |
VNQ had its best year in 2014 with an annual return of 30.29%. VNQ’s worst year over the past decade yielded -5.95% and occurred in 2018. In most years the Vanguard Real Estate Index Fund ETF Shares provided moderate returns such as in 2017, 2016, and 2011 where annual returns amounted to 4.95%, 8.53%, and 8.62% 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 |
| VNQ | $10,000 | $29,506 | 11.05% |
| TIP | $10,000 | $15,229 | 4.07% |
A $10,000 investment in VNQ would have resulted in a final balance of $29,506. This is a profit of $19,506 over 11 years and amounts to a compound annual growth rate (CAGR) of 11.05%.
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%.
VNQ’s CAGR is 6.98 percentage points higher than that of TIP and as a result, would have yielded $14,277 more on a $10,000 investment. Thus, VNQ outperformed TIP by 6.98% annually.
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