AGG vs. VCSH: What’s The Difference?

The iShares Core U.S. Aggregate Bond ETF (AGG) and the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) are both among the Top 100 ETFs. AGG is a iShares Intermediate-Term Bond fund and VCSH is a Vanguard Short-Term Bond fund. So, what’s the difference between AGG and VCSH? And which fund is better?

The expense ratio of AGG is 0.01 percentage points lower than VCSH’s (0.04% vs. 0.05%). AGG is mostly comprised of AAA bonds and VCSH has a high exposure to BBB bond. Overall, AGG has provided higher returns than VCSH over the past ten years.

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

Summary

AGG VCSH
Name iShares Core U.S. Aggregate Bond ETF Vanguard Short-Term Corporate Bond Index Fund ETF Shares
Category Intermediate-Term Bond Short-Term Bond
Issuer iShares Vanguard
AUM 88.8B 47.88B
Avg. Return 4.04% 3.12%
Div. Yield 1.95% 1.89%
Expense Ratio 0.04% 0.05%

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 Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) is a Short-Term Bond fund that is issued by Vanguard. It currently has 47.88B total assets under management and has yielded an average annual return of 3.12% over the past 10 years. The fund has a dividend yield of 1.89% with an expense ratio of 0.05%.

AGG’s dividend yield is 0.06% higher than that of VCSH (1.95% vs. 1.89%). Also, AGG yielded on average 0.92% more per year over the past decade (4.04% vs. 3.12%). The expense ratio of AGG is 0.01 percentage points lower than VCSH’s (0.04% vs. 0.05%).

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.

VCSH - Holdings

VCSH Bond Sectors Weight
BBB 47.49%
A 43.06%
AA 8.45%
AAA 0.95%
Below B 0.03%
Others 0.02%
B 0.0%
BB 0.0%
US Government 0.0%

VCSH’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 47.49%, 43.06%, 8.45%, 0.95%, and 0.03%. The fund is less weighted towards Others (0.02%), B (0.0%), and BB (0.0%) rated bonds.

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 VCSH
Mean Return 0.28 0.24
R-squared 99.96 37.53
Std. Deviation 3.03 2.34
Alpha -0.08 0.93
Beta 1.01 0.48
Sharpe Ratio 0.9 0.97
Treynor Ratio 2.7 4.75

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

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) has a Mean Return of 0.24 with a Treynor Ratio of 4.75 and a R-squared of 37.53. Its Beta is 0.48 while VCSH’s Alpha is 0.93. Furthermore, the fund has a Sharpe Ratio of 0.97 and a Standard Deviation of 2.34.

AGG’s Mean Return is 0.04 points higher than that of VCSH and its R-squared is 62.43 points higher. With a Standard Deviation of 3.03, AGG is slightly more volatile than VCSH. The Alpha and Beta of AGG are 1.01 points lower and 0.53 points higher than VCSH’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. VCSH - Annual Returns

Year AGG VCSH
2020 7.42% 5.08%
2019 8.68% 6.85%
2018 -0.05% 0.91%
2017 3.53% 2.45%
2016 2.56% 2.63%
2015 0.48% 1.25%
2014 6.04% 1.96%
2013 -2.15% 1.37%
2012 4.04% 5.74%
2011 7.58% 2.94%
2010 6.3% 5.51%

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 VCSH, returning 6.85% on an annual basis. The poorest year for VCSH in the last ten years was 2018, with a yield of 0.91%. Most years the Vanguard Short-Term Corporate Bond Index Fund ETF Shares has given investors modest returns, such as in 2017, 2016, and 2011, when gains were 2.45%, 2.63%, and 2.94% respectively.

Portfolio Growth

AGG vs. VCSH - Portfolio Growth

Fund Initial Balance Final Balance CAGR
AGG $10,000 $14,457 4.04%
VCSH $10,000 $13,569 3.12%

A $10,000 investment in AGG would have resulted in a final balance of $14,457. This is a profit of $4,457 over 10 years and amounts to a compound annual growth rate (CAGR) of 4.04%.

With a $10,000 investment in VCSH, the end total would have been $13,569. This equates to a $3,569 profit over 10 years and a compound annual growth rate (CAGR) of 3.12%.

AGG’s CAGR is 0.92 percentage points higher than that of VCSH and as a result, would have yielded $888 more on a $10,000 investment. Thus, AGG outperformed VCSH by 0.92% 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