AGG ETF Overview
Summary: The AGG ETF would be a solid choice for a passive core bond fund.
Commentary: The AGG ETF is a good, inexpensive way to get exposure to the bond market. If interest rates do not change then you will earn around 2.5% from interest payments per year. However, the real value of this fund is that is provides your portfolio some protection against the volatility of the stock market.
The AGG ETF has an intermediate term duration, meaning that If interest rates rise by 1%, the AGG ETF will tend to lose about 5% of its value. Conversely if interest rates fall by 1% then the AGG ETF will gain around 5%.
AGG ETF Rating Criteria
Fees: Good. Compared to active core bond funds and on absolute basis, the annual expense fee of 0.20% is tiny. However, a very similar competing product, BND, charges half the fees. (Learn more about bond ETF fees here.)
Tracking: Excellent. The index it tracks does an excellent job tracking the US investment grade bond market, excluding municipal bonds. Over 3 and 5 year time periods, over 98% of the AGG ETF’s performance can be attributed to changes in the index.
Liquidity: Excellent. The AGG ETF has over $15 billion dollars in assets and typically trades at a price that is very, very close to its NAV. Learn more about Bond ETF NAV here.