The iShares Core U.S. Aggregate Bond ETF (AGG) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. AGG is a iShares Intermediate-Term Bond fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between AGG and LQD? And which fund is better?
The expense ratio of AGG is 0.10 percentage points lower than LQD’s (0.04% vs. 0.14%). AGG is mostly comprised of AAA bonds and LQD has a high exposure to BBB bond. Overall, AGG has provided lower returns than LQD over the past ten years.
In this article, we’ll compare AGG vs. LQD. We’ll look at portfolio growth and risk metrics, as well as at their annual returns and performance. Moreover, I’ll also discuss AGG’s and LQD’s fund composition, holdings, and industry exposure and examine how these affect their overall returns.
|Name||iShares Core U.S. Aggregate Bond ETF||iShares iBoxx $ Investment Grade Corporate Bond ETF|
|Category||Intermediate-Term Bond||Corporate Bond|
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 iBoxx $ Investment Grade Corporate Bond ETF (LQD) is a Corporate Bond fund that is issued by iShares. It currently has 40.23B total assets under management and has yielded an average annual return of 6.58% over the past 10 years. The fund has a dividend yield of 2.48% with an expense ratio of 0.14%.
AGG’s dividend yield is 0.53% lower than that of LQD (1.95% vs. 2.48%). Also, AGG yielded on average 2.54% less per year over the past decade (4.04% vs. 6.58%). The expense ratio of AGG is 0.10 percentage points lower than LQD’s (0.04% vs. 0.14%).
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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.
|LQD Bond Sectors||Weight|
LQD’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and BB at 50.92%, 37.97%, 8.49%, 2.7%, and 0.05%. The fund is less weighted towards Below B (0.0%), B (0.0%), and US Government (0.0%) rated bonds.
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The iShares Core U.S. Aggregate Bond ETF (AGG) has a Alpha of -0.08 with a R-squared of 99.96 and a Treynor Ratio of 2.7. Its Sharpe Ratio is 0.9 while AGG’s Mean Return is 0.28. Furthermore, the fund has a Standard Deviation of 3.03 and a Beta of 1.01.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a R-squared of 66.93 with a Beta of 1.62 and a Sharpe Ratio of 0.85. Its Alpha is 0.52 while LQD’s Mean Return is 0.47. Furthermore, the fund has a Treynor Ratio of 3.08 and a Standard Deviation of 5.94.
AGG’s Mean Return is 0.19 points lower than that of LQD and its R-squared is 33.03 points higher. With a Standard Deviation of 3.03, AGG is slightly less volatile than LQD. The Alpha and Beta of AGG are 0.60 points lower and 0.61 points lower than LQD’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 2019 was the strongest year for LQD, returning 17.13% on an annual basis. The poorest year for LQD in the last ten years was 2018, with a yield of -3.76%. Most years the iShares iBoxx $ Investment Grade Corporate Bond ETF has given investors modest returns, such as in 2017, 2014, and 2011, when gains were 7.16%, 8.57%, and 8.89% 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 LQD, the end total would have been $19,776. This equates to a $9,776 profit over 11 years and a compound annual growth rate (CAGR) of 6.58%.
AGG’s CAGR is 2.54 percentage points lower than that of LQD and as a result, would have yielded $4,408 less on a $10,000 investment. Thus, AGG performed worse than LQD by 2.54% annually.
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