BND vs TIP: What’s The Difference?
LAST UPDATED: June 14, 2023 | By Conrad Golly
The Vanguard Total Bond Market Index Fund ETF Shares (BND) and the iShares TIPS Bond ETF (TIP) are both among the Top 100 ETFs. BND is a Vanguard Intermediate-Term Bond fund and TIP is a iShares Inflation-Protected Bond fund. So, what’s the difference between BND vs TIP? And which fund is better?
The expense ratio of BND is 0.16 percentage points lower than TIP’s (0.03% vs. 0.19%). BND is mostly comprised of AAA bonds and TIP has a high exposure to AAA bond. Overall, BND has provided higher returns than TIP over the past ten years.
In this article, we’ll compare BND vs. TIP. We’ll look at fund composition and annual returns, as well as at their performance and holdings. Moreover, I’ll also discuss BND’s and TIP’s portfolio growth, industry exposure, and risk metrics and examine how these affect their overall returns.
Summary BND vs TIP
| Name | Category | Issuer | AUM | Avg. Return | Div. Yield | Expense Ratio |
|---|---|---|---|---|---|---|
| Vanguard Total Bond Market Index Fund ETF Shares | Intermediate-Term Bond | Vanguard | $327.4B | 4.16% | 1.97% | 0.035% |
| iShares TIPS Bond ETF | Inflation-Protected Bond | iShares | $27.5B | 3.67% | 1.03% | 0.19% |
The Vanguard Total Bond Market Index Fund ETF Shares (BND) is an Intermediate-Term Bond fund issued by Vanguard. As of August 2021, it has $327.4B in total assets under management and has yielded an average annual return of 4.16% over the past 10 years. The fund has a dividend yield of 1.97% with an expense ratio of 0.035%.
The iShares TIPS Bond ETF (TIP) is an Inflation-Protected Bond fund issued by iShares. As of August 2021, it has $27.5B in total assets under management and has yielded an average annual return of 3.67% over the past 10 years. The fund has a dividend yield of 1.03% with an expense ratio of 0.19%.
BND’s dividend yield is 0.94% higher than that of TIP (1.97% vs. 1.03%). Also, BND yielded on average 0.49% more per year over the past decade (4.16% vs. 3.67%). The expense ratio of BND is 0.16 percentage points lower than TIP’s (0.035% vs. 0.19%).
Fund Composition BND vs TIP
Holdings
| BND Bond Sectors | Weight |
| AAA | 68.72% |
| BBB | 16.17% |
| A | 11.87% |
| AA | 3.34% |
| Below B | 0.01% |
| B | 0.0% |
| BB | 0.0% |
| US Government | 0.0% |
| Others | -0.11% |
BND’s Top Bond Sectors are ratings of AAA, BBB, A, AA, and Below B at 68.72%, 16.17%, 11.87%, 3.34%, and 0.01%. The fund is less weighted towards B (0.0%), BB (0.0%), and US Government (0.0%) rated bonds.
| 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 BND vs TIP
| BND | TIP | |
| Mean Return | 0.28 | 0.28 |
| R-squared | 99.34 | 66.57 |
| Std. Deviation | 3.14 | 4.33 |
| Alpha | -0.14 | -0.58 |
| Beta | 1.04 | 1.18 |
| Sharpe Ratio | 0.88 | 0.62 |
| Treynor Ratio | 2.64 | 2.24 |
The Vanguard Total Bond Market Index Fund ETF Shares (BND) has a Beta of 1.04 with a Treynor Ratio of 2.64 and a Alpha of -0.14. Its R-squared is 99.34 while BND’s Mean Return is 0.28. Furthermore, the fund has a Standard Deviation of 3.14 and a Sharpe Ratio of 0.88.
The iShares TIPS Bond ETF (TIP) has a Treynor Ratio of 2.24 with a Beta of 1.18 and a Alpha of -0.58. Its Sharpe Ratio is 0.62 while TIP’s R-squared is 66.57. Furthermore, the fund has a Mean Return of 0.28 and a Standard Deviation of 4.33.
BND’s Mean Return is 0.00 points lower than that of TIP and its R-squared is 32.77 points higher. With a Standard Deviation of 3.14, BND is slightly less volatile than TIP. The Alpha and Beta of BND are 0.44 points higher and 0.14 points lower than TIP’s Alpha and Beta.
Performance BND vs TIP
Annual Returns
| Year | BND | TIP |
| 2020 | 7.71% | 10.91% |
| 2019 | 8.71% | 8.28% |
| 2018 | -0.04% | -1.43% |
| 2017 | 3.62% | 2.92% |
| 2016 | 2.57% | 4.56% |
| 2015 | 0.39% | -1.59% |
| 2014 | 5.96% | 3.49% |
| 2013 | -2.14% | -8.65% |
| 2012 | 4.04% | 6.8% |
| 2011 | 7.71% | 13.4% |
| 2010 | 6.51% | 6.1% |
BND had its best year in 2019 with an annual return of 8.71%. BND’s worst year over the past decade yielded -2.14% and occurred in 2013. In most years the Vanguard Total Bond Market Index Fund ETF Shares provided moderate returns such as in 2017, 2012, and 2014 where annual returns amounted to 3.62%, 4.04%, and 5.96% 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 BND vs TIP
| Fund | Initial Balance | Final Balance | CAGR |
| BND | $10,000 | $15,456 | 4.09% |
| TIP | $10,000 | $15,229 | 4.07% |
A $10,000 investment in BND would have resulted in a final balance of $15,456. This is a profit of $5,456 over 11 years and amounts to a compound annual growth rate (CAGR) of 4.09%.
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%.
BND’s CAGR is 0.02 percentage points higher than that of TIP and as a result, would have yielded $227 more on a $10,000 investment. Thus, BND outperformed TIP by 0.02% annually.
The Bottom Line BND vs TIP
When comparing BND vs. TIP, it is important to consider the differences in their investment strategies.
BND, as an Intermediate-Term Bond fund, invests in a broad range of fixed income securities, including government bonds, corporate bonds, and mortgage-backed securities.
On the other hand, TIP, as an Inflation-Protected Bond fund, invests primarily in Treasury Inflation-Protected Securities (TIPS), which are government securities that are designed to protect investors against inflation.
One key advantage of TIPS is that they provide a hedge against inflation, as their principal value is adjusted based on changes in the Consumer Price Index. This means that investors can potentially benefit from rising interest rates and inflation, which can increase the value of their investment.
However, TIPS may be subject to state and local taxes on interest payments and capital gains, which can reduce their overall returns.
BND, on the other hand, provides exposure to a diverse range of fixed income securities, which can help to reduce risk and volatility in a portfolio. Additionally, BND has historically provided higher returns than TIP, with a slightly higher average annual return over the past decade. BND also has a lower expense ratio than TIP, which can help to reduce costs for investors.
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