The Vanguard Growth Index Fund ETF Shares (VUG) and the iShares TIPS Bond ETF (TIP) are both among the Top 100 ETFs. VUG is a Vanguard Large Growth fund and TIP is a iShares Inflation-Protected Bond fund. So, what’s the difference between VUG and TIP? And which fund is better?
The expense ratio of VUG is 0.15 percentage points lower than TIP’s (0.04% vs. 0.19%). VUG also has a high exposure to the technology sector while TIP is mostly comprised of AAA bonds. Overall, VUG has provided higher returns than TIP over the past ten years.
In this article, we’ll compare VUG vs. TIP. We’ll look at annual returns and risk metrics, as well as at their portfolio growth and fund composition. Moreover, I’ll also discuss VUG’s and TIP’s performance, industry exposure, and holdings and examine how these affect their overall returns.
|Name||Vanguard Growth Index Fund ETF Shares||iShares TIPS Bond ETF|
|Category||Large Growth||Inflation-Protected Bond|
The Vanguard Growth Index Fund ETF Shares (VUG) is a Large Growth fund that is issued by Vanguard. It currently has 165.53B total assets under management and has yielded an average annual return of 17.58% over the past 10 years. The fund has a dividend yield of 0.57% with an expense ratio of 0.04%.
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%.
VUG’s dividend yield is 1.30% lower than that of TIP (0.57% vs. 1.87%). Also, VUG yielded on average 13.51% more per year over the past decade (17.58% vs. 4.07%). The expense ratio of VUG is 0.15 percentage points lower than TIP’s (0.04% vs. 0.19%).
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|Facebook Inc Class A||3.89%|
|Alphabet Inc Class A||3.43%|
|Alphabet Inc Class C||3.22%|
|Visa Inc Class A||1.78%|
|PayPal Holdings Inc||1.6%|
VUG’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, and Alphabet Inc Class A at 10.13%, 9.52%, 6.88%, 3.89%, and 3.43%.
Alphabet Inc Class C (3.22%), Tesla Inc (2.44%), and NVIDIA Corp (2.21%) have a slightly smaller but still significant weight. Visa Inc Class A and PayPal Holdings Inc are also represented in the VUG’s holdings at 1.78% and 1.6%.
|TIP Bond Sectors||Weight|
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.
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The Vanguard Growth Index Fund ETF Shares (VUG) has a Standard Deviation of 14.76 with a Mean Return of 1.44 and a Beta of 1.04. Its Alpha is 1.81 while VUG’s Sharpe Ratio is 1.13. Furthermore, the fund has a Treynor Ratio of 16.13 and a R-squared of 92.48.
The iShares TIPS Bond ETF (TIP) has a Alpha of -0.58 with a R-squared of 66.57 and a Standard Deviation of 4.33. Its Treynor Ratio is 2.24 while TIP’s Sharpe Ratio is 0.62. Furthermore, the fund has a Beta of 1.18 and a Mean Return of 0.28.
VUG’s Mean Return is 1.16 points higher than that of TIP and its R-squared is 25.91 points higher. With a Standard Deviation of 14.76, VUG is slightly more volatile than TIP. The Alpha and Beta of VUG are 2.39 points higher and 0.14 points lower than TIP’s Alpha and Beta.
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VUG had its best year in 2020 with an annual return of 40.16%. VUG’s worst year over the past decade yielded -3.32% and occurred in 2018. In most years the Vanguard Growth Index Fund ETF Shares provided moderate returns such as in 2014, 2012, and 2010 where annual returns amounted to 13.62%, 17.03%, and 17.11% 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.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in VUG would have resulted in a final balance of $54,735. This is a profit of $44,735 over 11 years and amounts to a compound annual growth rate (CAGR) of 17.58%.
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%.
VUG’s CAGR is 13.51 percentage points higher than that of TIP and as a result, would have yielded $39,506 more on a $10,000 investment. Thus, VUG outperformed TIP by 13.51% annually.
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