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The 5 Largest Bond ETFs and the Indexes They Track

(June 2012) What are the largest Bond ETFs and which bond indexes do they track?  Here is a summary table with more detailed overviews of each below:

Bond ETF Name Size (Assets Under Management) Index Name
iShares Barclays TIPS Bond (TIP) $23.4 Billion Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L)
iShares iBoxx $ Investment Grade Corporate Bond (LQD) $21.2 Billion iBoxx $ Liquid Investment Grade Index
Vanguard Total Bond Market (BND) $17.1 Billion Barclays Capital U.S. Float Adjusted Bond Index
iShares Barclays Aggregate Bond (AGG) $15.2 Billion Barclays Capital U.S. Aggregate Bond Index
iShares iBoxx $ High Yield Coporate Bond (HYG) $14.1 Billion iBoxx $ Liquid High Yield Index

Data From Index Universe 5/31/2012

 

The TIP ETF Tracks The Barclays Capital US Treasury Inflation Protected Securities Index

An interesting question arises with the TIP ETF.  Why you would need an index to track one, very narrowly focused, type of security issued by the US Department of Treasury. The answer is that there is a tremendous amount of variation within the Treasury Inflation Protected Securities (TIPS) universe. TIPS vary by maturity date, value of principal, and fixed interest rate. You could have two TIPS with the same maturity date and fixed interest rate, but a different principal value (if they were issued on different dates).

The Barclays Capital  US Treasury Inflation Protected Securities Index is weighted by market value and includes all TIPS issues with more than $250 million in bonds outstanding, and more than one year left to maturity.

 

LQD Tracks The iBoxx $ Liquid Investment Grade Index

This index is in fact very narrowly defined.  Its goal is to include corporate bonds that are likely to be frequently traded and have a tight bid-ask spread. The index is weighted by the size of the bond issues, however no single issuer is allowed to represent more than 3% of the index.

Bonds in this index must meet all the following criteria:

  • Denominated in US Dollars.
  • Corporate bonds
  • Rated Investment Grade
  • Issued a corporation with over $2 billion in outstanding bonds.
  • Have a maturity of less than 5 years but more than 3 years.

AGG Tracks The Barclays Capital U.S. Aggregate Bond Index

The goal of this index is to track the entire US investment grade bond market with a few exceptions, which are mentioned below. The index is weighted by the market value of the bond issues which is why Treasury Bonds and Mortgage Backed Securities make up over 65% of the index. Over 70% of the index is rated “Aaa” by at least 2 of the 3 major rating agencies. The average maturity of the index changes as new issues enter the market and issues with less than 1 year to maturity are removed. The average maturity is currently a little over 5 years.

What does this index track?

Bond Type Percentage of Index (June 2012)
US Treasury (excluding TIPs) 34.96%
Government Related 10.66%
Mortgage Backed Securities (Investment-Grade) 30.64%
Corporate Bonds (Investment-Grade) 20.58%
Asset Backed Securities .25%
Commercial Mortgage Backed Securities 1.88%

What doesn’t this index track?

  • Bonds With Less Than 1 Year To Maturity
  • (Tax-Free) Municipal Bonds
  • Non-Investment Grade / Junk bonds
  • Floating / Variable Rate Securities
  • Non-US Dollar Denominated Debt
  • Zero Coupon Bonds
  • Bond Issues With Less Than $250 Million In Outstanding Debt

BND Tracks Barclays Capital US Aggregate Float Adjusted Bond Index

The US Barclays Capital US Aggregate Float Adjusted Bond Index does not include bonds held by the Federal Reserve.  Otherwise, this index is identical to the Barclays Capital US Aggregate Bond Index.  As treasuries currently make up 1/3rd of the index, and the federal reserve currently owns about 1/3rd ($5 Trillion) of all outstanding treasuries, this change is significant.

 

HYG Tracks iBoxx $ Liquid High Yield Index

This index is in fact very narrowly defined with the goal of including non-investment grade/high yield corporate bonds that are likely to be frequently traded and have a tight bid-ask spread. The index is weighted by the market value of the bond issues, however, no single issuer is allowed to have bonds equaling more than 3% of the index.

Bonds in this index must meet all the following criteria:

  • Denominated in US Dollars.
  • Corporate bonds.
  • Rated non-Investment Grade
  • The issue must have over $400 Million in outstanding bonds.
  • Issued a corporation with over $1 billion in outstanding bonds.
  • Have a maturity of less than 15 years but more than 1 year.
Want to learn more about bond exchange traded funds?  Visit the Bond ETFs section here at Learn Bonds.


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David Waring

David Waring was the founder of LearnBonds.com and has been a major contributor to the extensive library of investing news and information available on the site. Until the launch of Learnbonds.com in late 2011 there was no single site on the internet catering exclusively to the individual bond investor. This was true even though more individuals own stocks than bonds. Learn Bonds was launched to fill that gap.