AGG vs. IEF: What’s The Difference?

The iShares Core U.S. Aggregate Bond ETF (AGG) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. AGG is a iShares Intermediate-Term Bond fund and IEF is a iShares Long Government fund. So, what’s the difference between AGG and IEF? And which fund is better?

The expense ratio of AGG is 0.11 percentage points lower than IEF’s (0.04% vs. 0.15%). AGG is mostly comprised of AAA bonds and IEF has a high exposure to AAA bond. Overall, AGG has provided lower returns than IEF over the past ten years.

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

Summary

AGG IEF
Name iShares Core U.S. Aggregate Bond ETF iShares 7-10 Year Treasury Bond ETF
Category Intermediate-Term Bond Long Government
Issuer iShares iShares
AUM 88.8B 13.44B
Avg. Return 4.04% 5.06%
Div. Yield 1.95% 0.84%
Expense Ratio 0.04% 0.15%

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 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.

AGG’s dividend yield is 1.11% higher than that of IEF (1.95% vs. 0.84%). Also, AGG yielded on average 1.02% less per year over the past decade (4.04% vs. 5.06%). The expense ratio of AGG is 0.11 percentage points lower than IEF’s (0.04% vs. 0.15%).

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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.

IEF - Holdings

IEF 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%

IEF’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 IEF
Mean Return 0.28 0.32
R-squared 99.96 77.56
Std. Deviation 3.03 5.42
Alpha -0.08 -1.2
Beta 1.01 1.59
Sharpe Ratio 0.9 0.6
Treynor Ratio 2.7 1.97

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

The iShares 7-10 Year Treasury Bond ETF (IEF) has a Standard Deviation of 5.42 with a Sharpe Ratio of 0.6 and a Beta of 1.59. Its R-squared is 77.56 while IEF’s Alpha is -1.2. Furthermore, the fund has a Treynor Ratio of 1.97 and a Mean Return of 0.32.

AGG’s Mean Return is 0.04 points lower than that of IEF and its R-squared is 22.40 points higher. With a Standard Deviation of 3.03, AGG is slightly less volatile than IEF. The Alpha and Beta of AGG are 1.12 points higher and 0.58 points lower than IEF’s Alpha and Beta.

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Performance

Annual Returns

AGG vs. IEF - Annual Returns

Year AGG IEF
2020 7.42% 9.84%
2019 8.68% 8.38%
2018 -0.05% 0.82%
2017 3.53% 2.47%
2016 2.56% 1.0%
2015 0.48% 1.55%
2014 6.04% 8.92%
2013 -2.15% -6.12%
2012 4.04% 4.06%
2011 7.58% 15.46%
2010 6.3% 9.29%

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 2011 was the strongest year for IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.

Portfolio Growth

AGG vs. IEF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
AGG $10,000 $15,368 4.04%
IEF $10,000 $16,936 5.06%

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 IEF, the end total would have been $16,936. This equates to a $6,936 profit over 11 years and a compound annual growth rate (CAGR) of 5.06%.

AGG’s CAGR is 1.02 percentage points lower than that of IEF and as a result, would have yielded $1,568 less on a $10,000 investment. Thus, AGG performed worse than IEF by 1.02% annually.


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