The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and VTIP is a Vanguard Inflation-Protected Bond fund. So, what’s the difference between VNQ and VTIP? And which fund is better?
The expense ratio of VNQ is 0.07 percentage points higher than VTIP’s (0.12% vs. 0.05%). VNQ also has a high exposure to the real estate sector while VTIP is mostly comprised of AAA bonds. Overall, VNQ has provided higher returns than VTIP over the past ten years.
In this article, we’ll compare VNQ vs. VTIP. We’ll look at annual returns and holdings, as well as at their industry exposure and performance. Moreover, I’ll also discuss VNQ’s and VTIP’s risk metrics, fund composition, and portfolio growth and examine how these affect their overall returns.
Summary
| VNQ | VTIP | |
| Name | Vanguard Real Estate Index Fund ETF Shares | Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares |
| Category | Real Estate | Inflation-Protected Bond |
| Issuer | Vanguard | Vanguard |
| AUM | 77.34B | 50.67B |
| Avg. Return | 11.05% | 1.79% |
| Div. Yield | 2.34% | 1.35% |
| Expense Ratio | 0.12% | 0.05% |
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 Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) is a Inflation-Protected Bond fund that is issued by Vanguard. It currently has 50.67B total assets under management and has yielded an average annual return of 1.79% over the past 10 years. The fund has a dividend yield of 1.35% with an expense ratio of 0.05%.
VNQ’s dividend yield is 0.99% higher than that of VTIP (2.34% vs. 1.35%). Also, VNQ yielded on average 9.26% more per year over the past decade (11.05% vs. 1.79%). The expense ratio of VNQ is 0.07 percentage points higher than VTIP’s (0.12% vs. 0.05%).
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%.
| VTIP Bond Sectors | Weight |
| AAA | 99.87% |
| Others | 0.13% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
VTIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.87%, 0.13%, 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 | VTIP | |
| Mean Return | 0.89 | 0 |
| R-squared | 44.4 | 0 |
| Std. Deviation | 16.13 | 0 |
| Alpha | 2.47 | 0 |
| Beta | 0.76 | 0 |
| Sharpe Ratio | 0.62 | 0 |
| Treynor Ratio | 11.9 | 0 |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Alpha of 2.47 with a Standard Deviation of 16.13 and a Sharpe Ratio of 0.62. Its R-squared is 44.4 while VNQ’s Beta is 0.76. Furthermore, the fund has a Treynor Ratio of 11.9 and a Mean Return of 0.89.
The Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) has a Standard Deviation of 0 with a Mean Return of 0 and a R-squared of 0. Its Treynor Ratio is 0 while VTIP’s Alpha is 0. Furthermore, the fund has a Sharpe Ratio of 0 and a Beta of 0.
VNQ’s Mean Return is 0.89 points higher than that of VTIP and its R-squared is 44.40 points higher. With a Standard Deviation of 16.13, VNQ is slightly more volatile than VTIP. The Alpha and Beta of VNQ are 2.47 points higher and 0.76 points higher than VTIP’s Alpha and Beta.
Performance
Annual Returns
| Year | VNQ | VTIP |
| 2020 | -4.72% | 4.97% |
| 2019 | 28.91% | 4.83% |
| 2018 | -5.95% | 0.54% |
| 2017 | 4.95% | 0.82% |
| 2016 | 8.53% | 2.71% |
| 2015 | 2.37% | -0.15% |
| 2014 | 30.29% | -1.17% |
| 2013 | 2.42% | -1.55% |
| 2012 | 17.67% | 0.0% |
| 2011 | 8.62% | 0.0% |
| 2010 | 28.44% | 0.0% |
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 2020 was the strongest year for VTIP, returning 4.97% on an annual basis. The poorest year for VTIP in the last ten years was 2013, with a yield of -1.55%. Most years the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares has given investors modest returns, such as in 2011, 2010, and 2018, when gains were 0.0%, 0.0%, and 0.54% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VNQ | $10,000 | $17,549 | 11.05% |
| VTIP | $10,000 | $11,305 | 1.79% |
A $10,000 investment in VNQ would have resulted in a final balance of $17,549. This is a profit of $7,549 over 7 years and amounts to a compound annual growth rate (CAGR) of 11.05%.
With a $10,000 investment in VTIP, the end total would have been $11,305. This equates to a $1,305 profit over 7 years and a compound annual growth rate (CAGR) of 1.79%.
VNQ’s CAGR is 9.26 percentage points higher than that of VTIP and as a result, would have yielded $6,244 more on a $10,000 investment. Thus, VNQ outperformed VTIP by 9.26% annually.
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