While corporate bonds are increasingly popular among
investors-along with junk securities due to their outsized
yield-a broad bond approach is taken by many as well. For
ETFs
that target this broad fixed income space, generally investors
focus in on two ultra-popular ETFs; the Vanguard Total Bond
Market ETF (BND) and the iShares Core Total U.S. Bond Market ETF
(AGG).
These two giants combine to take up over $30 billion in total
assets, making them both among the top five bond ETFs by total
AUM. Furthermore they both track the same benchmark, the Barclays
Capital U.S. Aggregate Bond Index, so exposure is going to be
quite similar (see
Target Date Bond ETFs Best or Worst Fixed Income
Funds?
).
So how do investors pick between the two?
Well, although they are very similar, there are actually some
key differences between the two and their fund holdings,
expenses, and tradability. So while they might appear identical,
some differences in sampling and other important factors should
be known by investors before deciding between either of these for
their portfolio:
Vanguard Total Bond Market ETF (
BND
)
This ETF is the slightly more popular of the two, having
amassed over $17 billion in total assets. Volume is also a tad
better for this fund, but both see more than one million shares
move hands on a daily basis so bid ask spreads shouldn't be too
much of a concern.
In terms of exposure, it is well spread out with intermediate
term bonds accounting for roughly 40% of assets, long term
another 40%, and short term the rest. Meanwhile from a bond type
look, federal debt accounts for about 45% of the product, with
corporates and collateralized securities accounting for the rest
(see
Seven Biggest Bond ETFs by AUM
).
Performance has also been strong in this ETF, with more than
29.8% gains in the trailing five year period. Yields, however,
are a little light thanks to the heavy government bond component,
helping to push the 30-Day SEC yield to just 1.67%.
iShares Core Total U.S. Bond Market ETF (
AGG
)
While this ETF may not be as popular or widely traded as BND,
it is older than its Vanguard counterpart, and thanks to its
rebranding, is now cheaper too. In fact, the ETF charges
investors just eight basis points a year in fees, beating out BND
by two basis points a year.
The ETF also has a bit more of a long-term focus, as these
securities account for roughly 55% of assets, followed by just
27% for intermediate term notes. Meanwhile, federal debt only
takes up about one-third of the assets, putting collateralized
debt at roughly half the portfolio, and corporates with nearly
all of the rest,
according
to XTF.com
.
In addition to having a lower expense ratio, AGG also has a
slightly lower yield, just four basis points lower than BND in
fact. However, performance in this iShares ETF has been better
over the long-term as in the trailing five year period the fund
has gained 28.9% (also see
Forget Interest Rate Risk with These Bond
ETFs
).
The Bottom Line
So while AGG and BND both offer up quality exposure across the
various types of fixed income securities in the U.S. market, they
do so in slightly different ways with different levels of both
liquidity and fees.
Although these differences might not appear to be much at
first glance, these issues can definitely influence returns and
should be something to note by investors before deciding which of
the two to purchase during these uncertain market times.
|
|
BND
|
AGG
|
|
Expense Ratio
|
0.10%
|
0.08%
|
|
Total Holdings
|
4,500+
|
1,666
|
|
30-Day SEC Yield
|
1.7%
|
1.6%
|
|
Treasury Component
|
36%
|
32%
|
|
Top Holding
|
T-Bill, due 2017 (12.2% of fund)
|
T-Bill, due 2014 (2.4% of fund)
|
|
Five Year Performance (XTF.com)
|
29.7%
|
28.9%
|
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ISHARS-BR AG BD (AGG): ETF Research Reports
VANGD-TOT BOND (BND): ETF Research Reports
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