The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares TIPS Bond ETF (TIP) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and TIP is a iShares Inflation-Protected Bond fund. So, what’s the difference between VWO and TIP? And which fund is better?
The expense ratio of VWO is 0.09 percentage points lower than TIP’s (0.1% vs. 0.19%). VWO also has a high exposure to the financial services sector while TIP is mostly comprised of AAA bonds. Overall, VWO has provided higher returns than TIP over the past ten years.
In this article, we’ll compare VWO vs. TIP. We’ll look at holdings and annual returns, as well as at their risk metrics and portfolio growth. Moreover, I’ll also discuss VWO’s and TIP’s fund composition, industry exposure, and performance and examine how these affect their overall returns.
|Name||Vanguard FTSE Emerging Markets Index Fund ETF Shares||iShares TIPS Bond ETF|
|Category||Diversified Emerging Mkts||Inflation-Protected Bond|
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) is a Diversified Emerging Mkts fund that is issued by Vanguard. It currently has 117.28B total assets under management and has yielded an average annual return of 5.79% over the past 10 years. The fund has a dividend yield of 1.98% 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%.
VWO’s dividend yield is 0.11% higher than that of TIP (1.98% vs. 1.87%). Also, VWO yielded on average 1.72% more per year over the past decade (5.79% vs. 4.07%). The expense ratio of VWO is 0.09 percentage points lower than TIP’s (0.1% vs. 0.19%).
|Tencent Holdings Ltd||5.29%|
|Alibaba Group Holding Ltd Ordinary Shares||4.73%|
|Taiwan Semiconductor Manufacturing Co Ltd||4.58%|
|Taiwan Semiconductor Manufacturing Co Ltd ADR||1.7%|
|Reliance Industries Ltd Shs Dematerialised||1.06%|
|Naspers Ltd Class N||1.01%|
|China Construction Bank Corp Class H||0.84%|
VWO’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Taiwan Semiconductor Manufacturing Co Ltd, Meituan, and Taiwan Semiconductor Manufacturing Co Ltd ADR at 5.29%, 4.73%, 4.58%, 1.88%, and 1.7%.
Reliance Industries Ltd Shs Dematerialised (1.06%), Naspers Ltd Class N (1.01%), and Vale SA (0.92%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the VWO’s holdings at 0.91% and 0.84%.
|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.
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a R-squared of 81.69 with a Standard Deviation of 17.64 and a Mean Return of 0.45. Its Alpha is -1.36 while VWO’s Treynor Ratio is 3.14. Furthermore, the fund has a Sharpe Ratio of 0.27 and a Beta of 1.06.
The iShares TIPS Bond ETF (TIP) has a Alpha of -0.58 with a Standard Deviation of 4.33 and a R-squared of 66.57. Its Treynor Ratio is 2.24 while TIP’s Mean Return is 0.28. Furthermore, the fund has a Beta of 1.18 and a Sharpe Ratio of 0.62.
VWO’s Mean Return is 0.17 points higher than that of TIP and its R-squared is 15.12 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than TIP. The Alpha and Beta of VWO are 0.78 points lower and 0.12 points lower than TIP’s Alpha and Beta.
VWO had its best year in 2017 with an annual return of 31.38%. VWO’s worst year over the past decade yielded -18.68% and occurred in 2011. In most years the Vanguard FTSE Emerging Markets Index Fund ETF Shares provided moderate returns such as in 2014, 2016, and 2020 where annual returns amounted to 0.6%, 11.75%, and 15.32% 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 VWO would have resulted in a final balance of $16,200. This is a profit of $6,200 over 11 years and amounts to a compound annual growth rate (CAGR) of 5.79%.
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%.
VWO’s CAGR is 1.72 percentage points higher than that of TIP and as a result, would have yielded $971 more on a $10,000 investment. Thus, VWO outperformed TIP by 1.72% annually.
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