ETF Spotlight on iShares Barclays Aggregate Bond Fund (NYSEArca: AGG), part of a weekly series.

Assets: $11 billion

Objective: Tracks the Barclays Capital U.S. Aggregate Bond Index

Holdings: AGG holds bonds across the spectrum; Treasury notes, Treasury bonds, corporate bonds, utilities, U.S. agencies and more

What You Should Know

  • In terms of total assets, AGG is one of the largest ETFs around
  • Has an expense ratio of 0.24% and 305 holdings
  • Thirty percent of the holdings have a maturity between 1-5 years; 0-1 year bonds are 25.1%; 5-10 year bonds are 30% and bonds 25 years and over are 12.1%
  • Most bonds in AGG -40% – are rated AAA by major ratings agencies
  • Although there’s increasing sentiment that bonds should be given the same attention to allocation as stocks, for investors who don’t wish to spend the time doing so, AGG can be a one-stop bond shop [Why It’s Time to Approach Bonds Differently.]

The Latest News

  • Bond ETFs are best bought when the prices are low. But as with anything, it’s easier said than done. In doing so, you’ll get in when the yields are higher. Price appreciation is a better possibility this way and you collect a bigger cash payout relative to your investments.
  • Even we have sounded the alarm: fixed-income could get hit as the Federal Reserve hikes interest rates. And that’s still true. But right now, it’s copacetic; there’s been a lot of bark with no bite yet in sight. [Bond ETFs Facing Wave of Issues.]
  • Yields continue to be appealing in certain areas. Long-term Treasuries will get beat in a higher interest rate environment, but short-term Treasuries and corporate bonds have been fine. Have an exit strategy in place if and when that changes, though. [8 ETFs That Can Add Income to Your Portfolio.]
  • Investors who are looking for income or for ways to mitigate risk will continue to find bonds to be an extremely appealing and efficient way to get access to the fixed-income space.
  • Bonds also help counter volatility while preserving capital, which is a nice aspect in these market conditions. [Why Investors Are Watching Short Treasury ETFs.]
  • The distributions that come from bonds can help cushion the blows on the downside.
  • Bond ETFs possess tax efficiency, low costs and total transparency. They also provide a kind of exposure that would be cost-prohibitive otherwise.

For past ETF Spotlights, visit our ETF Spotlight page.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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