AGG ETF: Under the Hood of the Biggest Bond ETF | ETF Trends

With over $65 billion in total assets accumulated since its inception in 2003, the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) is the big fish in an even bigger sea of bond exchange-traded funds (ETFs). What’s under the hood of this ETF that gives investors the much-needed core bond exposure, especially in today’s volatile market?

Fund Facts:

  • AGG seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index.
  • The index measures the performance of the total U.S. investment-grade bond market.
  • The fund generally invests at least 90% of its net assets in component securities of its underlying index and in investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of its underlying index.

Investors have no doubt been piling in on bonds the last couple of months given the stomach-churning market movements seen in U.S. equities thanks to U.S.-China trade wars and inverted yield curves. Bonds have always been the default safe haven asset when it comes to seeking shelter from volatility, but it can be a daunting task to find opportunities in the bond markets.

From corporate bonds to safe haven government debt, navigating the bond market is akin to a Jacques Cousteau-like ocean exploration. However, AGG can give investors broad-based exposure to the bond market, particularly when the options in fixed income are aplenty.

In essence, AGG is a smorgasbord of bond market exposure for the investor who is not as discerning. Furthermore, with a net expense ratio of just 0.05%, it provides this exposure at a low cost.

Reasons to use AGG:

  • Broad exposure to U.S. investment-grade bonds
  • A low-cost easy way to diversify a portfolio using fixed income
  •  Use at the core of your portfolio to seek stability and pursue income

Exactly what kind of bonds are inside AGG? Here’s a peek under the hood with its top holdings by issuer as of Sept. 17:

  1. U.S. Treasury: 39.74% weighting
  2. Federal National Mortgage Association: 11.52% weighting
  3. Government National Mortgage Association: 7.40% weighting
  4. Federal Home Loan Mortgage Corporation:  3.34% weighting
  5. Federal Home Loan Mortgage Corporation-Gold: 2.48% weighting

With safety and simplicity in mind, there’s an obvious tilt towards government debt and quality. Speaking to the safety component, 71.24% of the fund is invested in debt with a AAA credit rating.

Per Yahoo Finance performance numbers, AGG is up just over 7% YTD and over 8% within the past year.

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