AGG vs. IWM: What’s The Difference?

The iShares Core U.S. Aggregate Bond ETF (AGG) and the iShares Russell 2000 ETF (IWM) are both among the Top 100 ETFs. AGG is a iShares Intermediate-Term Bond fund and IWM is a iShares Small Blend fund. So, what’s the difference between AGG and IWM? And which fund is better?

The expense ratio of AGG is 0.15 percentage points lower than IWM’s (0.04% vs. 0.19%). AGG is mostly comprised of AAA bonds while IWM has a high exposure to the healthcare sector. Overall, AGG has provided lower returns than IWM over the past ten years.

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

Summary

AGG IWM
Name iShares Core U.S. Aggregate Bond ETF iShares Russell 2000 ETF
Category Intermediate-Term Bond Small Blend
Issuer iShares iShares
AUM 88.8B 66.48B
Avg. Return 4.04% 13.52%
Div. Yield 1.95% 0.86%
Expense Ratio 0.04% 0.19%

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 Russell 2000 ETF (IWM) is a Small Blend fund that is issued by iShares. It currently has 66.48B total assets under management and has yielded an average annual return of 13.52% over the past 10 years. The fund has a dividend yield of 0.86% with an expense ratio of 0.19%.

AGG’s dividend yield is 1.09% higher than that of IWM (1.95% vs. 0.86%). Also, AGG yielded on average 9.48% less per year over the past decade (4.04% vs. 13.52%). The expense ratio of AGG is 0.15 percentage points lower than IWM’s (0.04% vs. 0.19%).

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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.

IWM - Holdings

IWM Holdings Weight
AMC Entertainment Holdings Inc Class A 0.52%
Intellia Therapeutics Inc 0.33%
Crocs Inc 0.3%
BlackRock Cash Funds Treasury SL Agency 0.29%
Tenet Healthcare Corp 0.26%
Lattice Semiconductor Corp 0.26%
Tetra Tech Inc 0.25%
II-VI Inc 0.25%
EastGroup Properties Inc 0.24%
Arrowhead Pharmaceuticals Inc 0.24%

IWM’s Top Holdings are AMC Entertainment Holdings Inc Class A, Intellia Therapeutics Inc, Crocs Inc, BlackRock Cash Funds Treasury SL Agency, and Tenet Healthcare Corp at 0.52%, 0.33%, 0.3%, 0.29%, and 0.26%.

Lattice Semiconductor Corp (0.26%), Tetra Tech Inc (0.25%), and II-VI Inc (0.25%) have a slightly smaller but still significant weight. EastGroup Properties Inc and Arrowhead Pharmaceuticals Inc are also represented in the IWM’s holdings at 0.24% and 0.24%.

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Risk Analysis

AGG IWM
Mean Return 0.28 1.12
R-squared 99.96 77.73
Std. Deviation 3.03 18.87
Alpha -0.08 -5.12
Beta 1.01 1.23
Sharpe Ratio 0.9 0.68
Treynor Ratio 2.7 9.56

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

The iShares Russell 2000 ETF (IWM) has a Sharpe Ratio of 0.68 with a Mean Return of 1.12 and a R-squared of 77.73. Its Treynor Ratio is 9.56 while IWM’s Beta is 1.23. Furthermore, the fund has a Alpha of -5.12 and a Standard Deviation of 18.87.

AGG’s Mean Return is 0.84 points lower than that of IWM and its R-squared is 22.23 points higher. With a Standard Deviation of 3.03, AGG is slightly less volatile than IWM. The Alpha and Beta of AGG are 5.04 points higher and 0.22 points lower than IWM’s Alpha and Beta.

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Performance

Annual Returns

AGG vs. IWM - Annual Returns

Year AGG IWM
2020 7.42% 19.89%
2019 8.68% 25.42%
2018 -0.05% -11.02%
2017 3.53% 14.66%
2016 2.56% 21.36%
2015 0.48% -4.33%
2014 6.04% 4.94%
2013 -2.15% 38.85%
2012 4.04% 16.39%
2011 7.58% -4.19%
2010 6.3% 26.76%

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 2013 was the strongest year for IWM, returning 38.85% on an annual basis. The poorest year for IWM in the last ten years was 2018, with a yield of -11.02%. Most years the iShares Russell 2000 ETF has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 14.66%, 16.39%, and 19.89% respectively.

Portfolio Growth

AGG vs. IWM - Portfolio Growth

Fund Initial Balance Final Balance CAGR
AGG $10,000 $15,368 4.04%
IWM $10,000 $36,686 13.52%

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 IWM, the end total would have been $36,686. This equates to a $26,686 profit over 11 years and a compound annual growth rate (CAGR) of 13.52%.

AGG’s CAGR is 9.48 percentage points lower than that of IWM and as a result, would have yielded $21,318 less on a $10,000 investment. Thus, AGG performed worse than IWM by 9.48% annually.


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