AGG vs. IAU: What’s The Difference?

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

The expense ratio of AGG is 0.21 percentage points lower than IAU’s (0.04% vs. 0.25%). AGG is mostly comprised of AAA bonds while IAU has a high exposure to the technology sector. Overall, AGG has provided lower returns than IAU over the past ten years.

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

Summary

AGG IAU
Name iShares Core U.S. Aggregate Bond ETF iShares Gold Trust
Category Intermediate-Term Bond N/A
Issuer iShares iShares
AUM 88.8B 28.61B
Avg. Return 4.04% 6.03%
Div. Yield 1.95% 0.0%
Expense Ratio 0.04% 0.25%

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 Gold Trust (IAU) is a N/A fund that is issued by iShares. It currently has 28.61B total assets under management and has yielded an average annual return of 6.03% over the past 10 years. The fund has a dividend yield of 0.0% with an expense ratio of 0.25%.

AGG’s dividend yield is 1.95% higher than that of IAU (1.95% vs. 0.0%). Also, AGG yielded on average 1.99% less per year over the past decade (4.04% vs. 6.03%). The expense ratio of AGG is 0.21 percentage points lower than IAU’s (0.04% vs. 0.25%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

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.

IAU - Holdings

IAU Holdings Weight
Gold 100.0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%
N/A 0%

IAU’s Top Holdings are Gold, N/A, N/A, N/A, and N/A at 100.0%, 0%, 0%, 0%, and 0%.

N/A (0%), N/A (0%), and N/A (0%) have a slightly smaller but still significant weight. N/A and N/A are also represented in the IAU’s holdings at 0% and 0%.

NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).

Risk Analysis

AGG IAU
Mean Return 0.28 0.23
R-squared 99.96 16.03
Std. Deviation 3.03 16.97
Alpha -0.08 4.16
Beta 1.01 0.48
Sharpe Ratio 0.9 0.13
Treynor Ratio 2.7 1.5

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

The iShares Gold Trust (IAU) has a R-squared of 16.03 with a Sharpe Ratio of 0.13 and a Standard Deviation of 16.97. Its Mean Return is 0.23 while IAU’s Beta is 0.48. Furthermore, the fund has a Alpha of 4.16 and a Treynor Ratio of 1.5.

AGG’s Mean Return is 0.05 points higher than that of IAU and its R-squared is 83.93 points higher. With a Standard Deviation of 3.03, AGG is slightly less volatile than IAU. The Alpha and Beta of AGG are 4.24 points lower and 0.53 points higher than IAU’s Alpha and Beta.

BTW: Uncorrelated crypto assets such as Bitcoin can serve as a hedge and mitigate risk. I've allocated around 5% of my portfolio to crypto assets through Gemini - the simplest and cheapest broker I've found! Click here to read more (link to Gemini).

Performance

Annual Returns

AGG vs. IAU - Annual Returns

Year AGG IAU
2020 7.42% 23.86%
2019 8.68% 18.54%
2018 -0.05% -1.39%
2017 3.53% 11.58%
2016 2.56% 8.85%
2015 0.48% -11.65%
2014 6.04% -0.44%
2013 -2.15% -27.96%
2012 4.04% 8.37%
2011 7.58% 8.66%
2010 6.3% 27.93%

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 2010 was the strongest year for IAU, returning 27.93% on an annual basis. The poorest year for IAU in the last ten years was 2013, with a yield of -27.96%. Most years the iShares Gold Trust has given investors modest returns, such as in 2012, 2011, and 2016, when gains were 8.37%, 8.66%, and 8.85% respectively.

Portfolio Growth

AGG vs. IAU - Portfolio Growth

Fund Initial Balance Final Balance CAGR
AGG $10,000 $15,368 4.04%
IAU $10,000 $16,786 6.03%

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 IAU, the end total would have been $16,786. This equates to a $6,786 profit over 11 years and a compound annual growth rate (CAGR) of 6.03%.

AGG’s CAGR is 1.99 percentage points lower than that of IAU and as a result, would have yielded $1,418 less on a $10,000 investment. Thus, AGG performed worse than IAU by 1.99% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

3) If you are interested in crypto, check out Gemini. I've started allocating a small amount of assets to the growing crypto space and Gemini has just been a breeze to use. Once you register, make sure to also open an Active Trader account to buy crypto at the lowest fees on the market (just 0.03%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply