A Guide To The iShares TIPS Bond ETF: Structure, Performance, And Peers (NYSEARCA:TIP)

Mutual funds and ETFs are easy ways to invest in Treasury Inflation-Protected Securities (or “TIPS”). One popular option is the iShares TIPS Bond ETF, ticker symbol (NYSEARCA:TIP).

This article covers the fund’s holdings, how it can fit in a diversified portfolio, and how it might respond to different interest rate environments. TIP is also compared to peers in the inflation-protected bond ETF category.

Note that throughout, “TIP” refers to the ETF, while “TIPS” are the actual government bonds.

The iShares TIPS Bond ETF: Structure and Composition

The advantage of TIPS is that they both increase in value and pay more interest when inflation rises:

1. Their principal (i.e., what the bond was issued for) adjusts based on the Consumer Price Index (CPI). When inflation goes up, the value of the bond goes up.
2. Since interest is calculated as a percentage of that principal, those payments also increase. TIPS distribute interest every six months until they mature like Treasury notes and bonds.

The bonds’ value can go down if inflation is negative, but investors are guaranteed to at least get back the original investment at maturity.

TIP follows an index of U.S. Treasury inflation-protected bonds. It holds nearly all TIPS with at least one year left to maturity and $500 million+ in face value. As of October 2025, this results in a portfolio of 51 bonds spread across the full maturity curve – everything from short-term to maturities of over thirty years.

Since all TIPS are issued by the U.S. government, default risk is next to zero. The iShares fund is rated AA+/AAA and contains no corporate or high-yield debt. TIP’s weighted average maturity is 7.2 years, and its duration is 6.35 years – about what you’d find in an intermediate Treasury fund like iShares’ IEF or Schwab’s SCHR.

Where TIP Fits in Portfolios

This ETF can be used in different ways depending on the investor’s goals.

First, it’s a way of preserving purchasing power. As described above, both the bonds’ value and interest payments adjust for inflation. This makes it a good fit for retirement accounts and college savings plans.

It can also be used tactically. Investors who expect inflation to rise might use TIP as a hedge. Because of its design, funds in this category have (historically) outperformed fixed-rate Treasuries when inflation comes in hotter than expected.

TIP can be useful even when inflation isn’t much of a concern. Most bond funds move with interest rates, which are influenced by a range of factors. TIP behaves differently. It’s tied to real (i.e., inflation‑adjusted) rates. It’s generally had little correlation to the stock market, with a beta of about 0.2 over the past several years. Adding TIP can bring some stability to portfolios that are heavily weighted toward large-cap equities.

Historical Performance and Expectations for TIP

TIP’s long-term return comes from three things:

1. The bonds’ average interest rate minus expected inflation (i.e., real yield).
2. Increases in the bonds’ value when inflation rises.
3. Price changes as real interest rates move up or down in the market.

Over the past decade, TIP has returned a CAGR of 2.8%. Since launching in 2003, the return is about 3.6% per year on a compounded basis.

As the graph shows, TIP has been more volatile in the post-pandemic economy. The fund gained ~5.5% in 2021 when inflation grew 7% year over year. Then it lost 12.2% in 2022 as real interest rates rose about 270 basis points. Returns were positive again in 2023 and 2024 as inflation cooled and real yields leveled off. Through Q3 2025, the fund is up about 7% for the year.

How TIP Performs in Four Different Market Environments

When inflation is hot – TIP does best when inflation runs hotter than expected, because both the principal and interest payments are adjusted upward with the CPI. In contrast, regular Treasury funds suffer as their fixed payments lose value as prices rise.

When the Fed is hiking rates – As noted, it’s not just inflation that matters, it’s real yields. See the 2022 example: inflation was high, real yields jumped, and TIP fell dramatically. With a duration around 6.4 years, the fund isn’t extremely rate-sensitive. But it’s long enough for changes in real yields to have a significant impact.

When the Fed is cutting – When the Fed lowers rates and real yields fall, TIP gets a boost. That’s exactly what happened from late 2007 to mid-2008: the Fed cut aggressively, inflation stayed high, and TIP gained ~12%.

In a slowdown or mild inflation – TIP can lag regular Treasuries in these market climates. It still pays the interest rate it started with, and falling rates can help cushion the decline. The fund also protects against deflation: the bonds’ value won’t fall below their original principal.

Tax Considerations for the iShares TIPS Bond ETF

It is best to own TIP in tax-advantaged accounts like IRAs or 401(k)s. It applies inflation adjustments to the bond principal as taxable income, even though you don’t actually receive that in cash. This “phantom income” shows up in the monthly distribution and can lead to a tax bill. Holding TIP in a retirement account helps you avoid that issue.

Comparison of TIP and Its Closest Peers

The Inflation-Protected Bond ETFs category includes three other funds with AUM over $10 billion.

Vanguard Short-Term Inflation-Protected Securities (VTIP)

VTIP holds TIPS with remaining maturities under five years. It’s the largest in the category, and in typical Vanguard fashion, it set the standard with a 0.03% expense ratio. VTIP’s effective duration is around 2.4 years, so it is less sensitive to interest rates than TIP. Less sensitive means its price is more stable, and it should outperform in a hiking cycle. The tradeoff is lower total return potential over the long-term.

iShares 0-5 Year TIPS Bond (STIP)

STIP is highly similar to VTIP in design but pays monthly distributions rather than quarterly. Though it’s about a fourth the size, STIP is the more liquid of the two short-term investments. iShares matches Vanguard’s expense ratio here, and the two have produced virtually identical total returns over the past decade.

Schwab U.S. TIPS (SCHP)

The Schwab product is TIP’s closest peer. They are similar in size and both cover the full yield curve. The biggest difference is cost: 0.03% versus 0.18% for TIP. How does that play out over time? The difference compounded over a decade is about 2.3%, and since 2015, SCHP has outperformed TIP by about 1.5%. In other words, TIP actually won at the portfolio level, but its higher fee more than offset that edge.

Here is a side-by-side comparison:

Summary

The iShares TIP Bond ETF holds the full spectrum of Treasury Inflation-Protected Securities, returning ~3.5% CAGR since inception.

This article answers these five main questions about TIP:

1. How do Treasury Inflation-Protected Securities work?
2. How is the iShares’s TIP ETF structured?
3. How might TIP function in a diversified portfolio?
4. How does TIP perform in different market environments?
5. How does TIP compare to peers like VTIP, STIP, and SCHP?