The iShares Core U.S. Aggregate Bond ETF (AGG) and the iShares TIPS Bond ETF (TIP) are both among the Top 100 ETFs. AGG is a iShares Intermediate-Term Bond fund and TIP is a iShares Inflation-Protected Bond fund. So, what’s the difference between AGG and TIP? And which fund is better?
The expense ratio of AGG is 0.15 percentage points lower than TIP’s (0.04% vs. 0.19%). AGG is mostly comprised of AAA bonds and TIP has a high exposure to AAA bond. Overall, AGG has provided lower returns than TIP over the past ten years.
In this article, we’ll compare AGG vs. TIP. We’ll look at performance and risk metrics, as well as at their holdings and portfolio growth. Moreover, I’ll also discuss AGG’s and TIP’s industry exposure, fund composition, and annual returns and examine how these affect their overall returns.
|Name||iShares Core U.S. Aggregate Bond ETF||iShares TIPS Bond ETF|
|Category||Intermediate-Term Bond||Inflation-Protected 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 TIPS Bond ETF (TIP) is a Inflation-Protected Bond fund that is issued by iShares. It currently has 28.3B total assets under management and has yielded an average annual return of 4.07% over the past 10 years. The fund has a dividend yield of 1.87% with an expense ratio of 0.19%.
AGG’s dividend yield is 0.08% higher than that of TIP (1.95% vs. 1.87%). Also, AGG yielded on average 0.03% less per year over the past decade (4.04% vs. 4.07%). The expense ratio of AGG is 0.15 percentage points lower than TIP’s (0.04% vs. 0.19%).
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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.
|TIP Bond Sectors||Weight|
TIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.31%, 0.69%, 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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The iShares Core U.S. Aggregate Bond ETF (AGG) has a R-squared of 99.96 with a Treynor Ratio of 2.7 and a Standard Deviation of 3.03. Its Beta is 1.01 while AGG’s Sharpe Ratio is 0.9. Furthermore, the fund has a Mean Return of 0.28 and a Alpha of -0.08.
The iShares TIPS Bond ETF (TIP) has a Alpha of -0.58 with a Treynor Ratio of 2.24 and a Mean Return of 0.28. Its Sharpe Ratio is 0.62 while TIP’s Standard Deviation is 4.33. Furthermore, the fund has a R-squared of 66.57 and a Beta of 1.18.
AGG’s Mean Return is 0.00 points lower than that of TIP and its R-squared is 33.39 points higher. With a Standard Deviation of 3.03, AGG is slightly less volatile than TIP. The Alpha and Beta of AGG are 0.50 points higher and 0.17 points lower than TIP’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 2011 was the strongest year for TIP, returning 13.4% on an annual basis. The poorest year for TIP in the last ten years was 2013, with a yield of -8.65%. Most years the iShares TIPS Bond ETF has given investors modest returns, such as in 2014, 2016, and 2010, when gains were 3.49%, 4.56%, and 6.1% 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 TIP, the end total would have been $15,229. This equates to a $5,229 profit over 11 years and a compound annual growth rate (CAGR) of 4.07%.
AGG’s CAGR is 0.03 percentage points lower than that of TIP and as a result, would have yielded $139 more on a $10,000 investment. Thus, AGG performed worse than TIP by 0.03% annually.
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