The iShares Core U.S. Aggregate Bond ETF (AGG) and the iShares MSCI Emerging Markets ETF (EEM) are both among the Top 100 ETFs. AGG is a iShares Intermediate-Term Bond fund and EEM is a iShares Diversified Emerging Mkts fund. So, what’s the difference between AGG and EEM? And which fund is better?
The expense ratio of AGG is 0.64 percentage points lower than EEM’s (0.04% vs. 0.68%). AGG is mostly comprised of AAA bonds while EEM has a high exposure to the technology sector. Overall, AGG has provided lower returns than EEM over the past ten years.
In this article, we’ll compare AGG vs. EEM. We’ll look at holdings and performance, as well as at their portfolio growth and industry exposure. Moreover, I’ll also discuss AGG’s and EEM’s risk metrics, fund composition, and annual returns and examine how these affect their overall returns.
|Name||iShares Core U.S. Aggregate Bond ETF||iShares MSCI Emerging Markets ETF|
|Category||Intermediate-Term Bond||Diversified Emerging Mkts|
The iShares Core U.S. Aggregate Bond ETF (AGG) is a Intermediate-Term Bond fund that is issued by iShares. It currently has 88.8B total assets under management and has yielded an average annual return of 4.04% over the past 10 years. The fund has a dividend yield of 1.95% with an expense ratio of 0.04%.
The iShares MSCI Emerging Markets ETF (EEM) is a Diversified Emerging Mkts fund that is issued by iShares. It currently has 30.33B total assets under management and has yielded an average annual return of 5.47% over the past 10 years. The fund has a dividend yield of 1.48% with an expense ratio of 0.68%.
AGG’s dividend yield is 0.47% higher than that of EEM (1.95% vs. 1.48%). Also, AGG yielded on average 1.43% less per year over the past decade (4.04% vs. 5.47%). The expense ratio of AGG is 0.64 percentage points lower than EEM’s (0.04% vs. 0.68%).
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|AGG Bond Sectors||Weight|
AGG’s Top Bond Sectors are ratings of AAA, BBB, A, AA, and Others at 68.92%, 15.38%, 11.16%, 2.92%, and 1.63%. The fund is less weighted towards Below B (0.0%), B (0.0%), and BB (0.0%) rated bonds.
|Taiwan Semiconductor Manufacturing Co Ltd||6.36%|
|Alibaba Group Holding Ltd Ordinary Shares||4.58%|
|Tencent Holdings Ltd||4.41%|
|Samsung Electronics Co Ltd||4.05%|
|Naspers Ltd Class N||1.04%|
|Reliance Industries Ltd Shs Dematerialised||0.97%|
|China Construction Bank Corp Class H||0.83%|
EEM’s Top Holdings are Taiwan Semiconductor Manufacturing Co Ltd, Alibaba Group Holding Ltd Ordinary Shares, Tencent Holdings Ltd, Samsung Electronics Co Ltd, and Meituan at 6.36%, 4.58%, 4.41%, 4.05%, and 1.24%.
Vale SA (1.04%), Naspers Ltd Class N (1.04%), and Reliance Industries Ltd Shs Dematerialised (0.97%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the EEM’s holdings at 0.92% and 0.83%.
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The iShares Core U.S. Aggregate Bond ETF (AGG) has a Mean Return of 0.28 with a Standard Deviation of 3.03 and a Treynor Ratio of 2.7. Its Sharpe Ratio is 0.9 while AGG’s R-squared is 99.96. Furthermore, the fund has a Beta of 1.01 and a Alpha of -0.08.
The iShares MSCI Emerging Markets ETF (EEM) has a Mean Return of 0.38 with a Beta of 1.08 and a Sharpe Ratio of 0.22. Its R-squared is 83.5 while EEM’s Treynor Ratio is 2.22. Furthermore, the fund has a Standard Deviation of 17.79 and a Alpha of -2.33.
AGG’s Mean Return is 0.10 points lower than that of EEM and its R-squared is 16.46 points higher. With a Standard Deviation of 3.03, AGG is slightly less volatile than EEM. The Alpha and Beta of AGG are 2.25 points higher and 0.07 points lower than EEM’s Alpha and Beta.
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AGG had its best year in 2019 with an annual return of 8.68%. AGG’s worst year over the past decade yielded -2.15% and occurred in 2013. In most years the iShares Core U.S. Aggregate Bond ETF provided moderate returns such as in 2017, 2012, and 2014 where annual returns amounted to 3.53%, 4.04%, and 6.04% respectively.
The year 2017 was the strongest year for EEM, returning 36.42% on an annual basis. The poorest year for EEM in the last ten years was 2011, with a yield of -18.87%. Most years the iShares MSCI Emerging Markets ETF has given investors modest returns, such as in 2014, 2016, and 2010, when gains were -2.82%, 10.51%, and 15.93% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in AGG would have resulted in a final balance of $15,368. This is a profit of $5,368 over 11 years and amounts to a compound annual growth rate (CAGR) of 4.04%.
With a $10,000 investment in EEM, the end total would have been $15,578. This equates to a $5,578 profit over 11 years and a compound annual growth rate (CAGR) of 5.47%.
AGG’s CAGR is 1.43 percentage points lower than that of EEM and as a result, would have yielded $210 less on a $10,000 investment. Thus, AGG performed worse than EEM by 1.43% annually.
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