The iShares Core U.S. Aggregate Bond ETF (AGG) isn’t the end-all-be-all for getting core bond exposure when there are options from FlexShares to consider.
One such fund that can serve as an AGG alternative is the FlexShares Core Select Bond Fund (BNDC). With a focus on obtaining core bond exposure via holdings of ETFs, it’s essentially an ETF made up of ETFs.
That’s one of the primary differences between AGG and BNDC. AGG will expose investors to a variety of debt holdings comprised of individual bonds, namely safe haven Treasury notes.
BNDC will also offer exposure to Treasury notes, but as mentioned, through other ETFs as opposed to individual debt holdings. It holds iShares Treasury funds with a variety of targeted durations of five, seven, and 10 years as part of its top holdings.
Another main difference is that BNDC uses an active management approach as opposed to the passive management approach employed by AGG. Both funds focus on investment-grade debt so fixed income investors get quality holdings that avoid too much credit risk.
Active management helps eliminate the guesswork involved in choosing bond ETFs that suit an investor’s portfolio. As such, BNDC does all the heavy lifting and focuses on investment-grade debt issues to help minimize risk and capture maximum upside.
Using its active management style, BNDC seeks total return and preservation of capital. The fund invests at least 80% of its net assets in U.S. dollar-denominated investment-grade fixed-income securities either directly or indirectly through exchange traded funds and other registered investment companies.
Keeping Pace With AGG
For prospective investors wondering how BNDC stacks up against AGG, they’re relatively even on the three-year chart. In a traditional 60-40 portfolio, BNDC can serve as core bond exposure by itself or in tandem with a fund like AGG to get a passive-active split.
“The fund-of-funds model employed by the FlexShares Core Select Bond Fund (BNDC) gives investors access to Northern Trust’s institutional fixed-income expertise,” a FlexShares Fund Focus said. “The Fund’s portfolio managers have the ability to change the fund’s duration and risk allocation in response to changes in interest rates or risk levels in various sectors.”
“This ability to make tactical adjustments allows the Fund’s managers to express their current views on the evolution of the fixed-income market, which may help investors capture opportunities while managing risk,” FlexShares added.
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