AGG vs. GOVT: What’s The Difference?

The iShares Core U.S. Aggregate Bond ETF (AGG) and the iShares U.S. Treasury Bond ETF (GOVT) are both among the Top 100 ETFs. AGG is a iShares Intermediate-Term Bond fund and GOVT is a iShares Intermediate Government fund. So, what’s the difference between AGG and GOVT? And which fund is better?

The expense ratio of AGG is 0.01 percentage points lower than GOVT’s (0.04% vs. 0.05%). AGG is mostly comprised of AAA bonds and GOVT has a high exposure to AAA bond. Overall, AGG has provided higher returns than GOVT over the past ten years.

In this article, we’ll compare AGG vs. GOVT. We’ll look at fund composition and annual returns, as well as at their industry exposure and risk metrics. Moreover, I’ll also discuss AGG’s and GOVT’s holdings, portfolio growth, and performance and examine how these affect their overall returns.

Summary

AGG GOVT
Name iShares Core U.S. Aggregate Bond ETF iShares U.S. Treasury Bond ETF
Category Intermediate-Term Bond Intermediate Government
Issuer iShares iShares
AUM 88.8B 17.07B
Avg. Return 4.04% 2.67%
Div. Yield 1.95% 1.0%
Expense Ratio 0.04% 0.05%

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 U.S. Treasury Bond ETF (GOVT) is a Intermediate Government fund that is issued by iShares. It currently has 17.07B total assets under management and has yielded an average annual return of 2.67% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.05%.

AGG’s dividend yield is 0.95% higher than that of GOVT (1.95% vs. 1.0%). Also, AGG yielded on average 1.37% more per year over the past decade (4.04% vs. 2.67%). The expense ratio of AGG is 0.01 percentage points lower than GOVT’s (0.04% vs. 0.05%).

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Fund Composition

Holdings

AGG - Holdings

AGG Bond Sectors Weight
AAA 68.92%
BBB 15.38%
A 11.16%
AA 2.92%
Others 1.63%
Below B 0.0%
B 0.0%
BB 0.0%
US Government 0.0%

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.

GOVT - Holdings

GOVT Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

GOVT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

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Risk Analysis

AGG GOVT
Mean Return 0.28 0
R-squared 99.96 0
Std. Deviation 3.03 0
Alpha -0.08 0
Beta 1.01 0
Sharpe Ratio 0.9 0
Treynor Ratio 2.7 0

The iShares Core U.S. Aggregate Bond ETF (AGG) has a Beta of 1.01 with a Alpha of -0.08 and a Sharpe Ratio of 0.9. Its Treynor Ratio is 2.7 while AGG’s Mean Return is 0.28. Furthermore, the fund has a R-squared of 99.96 and a Standard Deviation of 3.03.

The iShares U.S. Treasury Bond ETF (GOVT) has a R-squared of 0 with a Alpha of 0 and a Standard Deviation of 0. Its Mean Return is 0 while GOVT’s Beta is 0. Furthermore, the fund has a Sharpe Ratio of 0 and a Treynor Ratio of 0.

AGG’s Mean Return is 0.28 points higher than that of GOVT and its R-squared is 99.96 points higher. With a Standard Deviation of 3.03, AGG is slightly more volatile than GOVT. The Alpha and Beta of AGG are 0.08 points lower and 1.01 points higher than GOVT’s Alpha and Beta.

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Performance

Annual Returns

AGG vs. GOVT - Annual Returns

Year AGG GOVT
2020 7.42% 7.92%
2019 8.68% 6.71%
2018 -0.05% 0.74%
2017 3.53% 2.19%
2016 2.56% 0.92%
2015 0.48% 0.76%
2014 6.04% 4.99%
2013 -2.15% -2.84%
2012 4.04% 0.0%
2011 7.58% 0.0%
2010 6.3% 0.0%

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 2020 was the strongest year for GOVT, returning 7.92% on an annual basis. The poorest year for GOVT in the last ten years was 2013, with a yield of -2.84%. Most years the iShares U.S. Treasury Bond ETF has given investors modest returns, such as in 2018, 2015, and 2016, when gains were 0.74%, 0.76%, and 0.92% respectively.

Portfolio Growth

AGG vs. GOVT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
AGG $10,000 $12,917 4.04%
GOVT $10,000 $12,297 2.67%

A $10,000 investment in AGG would have resulted in a final balance of $12,917. This is a profit of $2,917 over 8 years and amounts to a compound annual growth rate (CAGR) of 4.04%.

With a $10,000 investment in GOVT, the end total would have been $12,297. This equates to a $2,297 profit over 8 years and a compound annual growth rate (CAGR) of 2.67%.

AGG’s CAGR is 1.37 percentage points higher than that of GOVT and as a result, would have yielded $620 more on a $10,000 investment. Thus, AGG outperformed GOVT by 1.37% annually.


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