AGG vs. VHT: What’s The Difference?

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

The expense ratio of AGG is 0.06 percentage points lower than VHT’s (0.04% vs. 0.1%). AGG is mostly comprised of AAA bonds while VHT has a high exposure to the healthcare sector. Overall, AGG has provided lower returns than VHT over the past ten years.

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

Summary

AGG VHT
Name iShares Core U.S. Aggregate Bond ETF Vanguard Health Care Index Fund ETF Shares
Category Intermediate-Term Bond Health
Issuer iShares Vanguard
AUM 88.8B 17.94B
Avg. Return 4.04% 16.04%
Div. Yield 1.95% 1.15%
Expense Ratio 0.04% 0.1%

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 Health Care Index Fund ETF Shares (VHT) is a Health fund that is issued by Vanguard. It currently has 17.94B total assets under management and has yielded an average annual return of 16.04% over the past 10 years. The fund has a dividend yield of 1.15% with an expense ratio of 0.1%.

AGG’s dividend yield is 0.80% higher than that of VHT (1.95% vs. 1.15%). Also, AGG yielded on average 12.00% less per year over the past decade (4.04% vs. 16.04%). The expense ratio of AGG is 0.06 percentage points lower than VHT’s (0.04% vs. 0.1%).

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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.

VHT - Holdings

VHT Holdings Weight
Johnson & Johnson 7.34%
UnitedHealth Group Inc 6.44%
Pfizer Inc 3.7%
Abbott Laboratories 3.48%
Thermo Fisher Scientific Inc 3.37%
AbbVie Inc 3.37%
Merck & Co Inc 3.33%
Eli Lilly and Co 3.17%
Danaher Corp 2.91%
Medtronic PLC 2.83%

VHT’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and Thermo Fisher Scientific Inc at 7.34%, 6.44%, 3.7%, 3.48%, and 3.37%.

AbbVie Inc (3.37%), Merck & Co Inc (3.33%), and Eli Lilly and Co (3.17%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the VHT’s holdings at 2.91% and 2.83%.

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Risk Analysis

AGG VHT
Mean Return 0.28 1.33
R-squared 99.96 59.86
Std. Deviation 3.03 13.58
Alpha -0.08 7.99
Beta 1.01 0.75
Sharpe Ratio 0.9 1.13
Treynor Ratio 2.7 20.74

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

The Vanguard Health Care Index Fund ETF Shares (VHT) has a Alpha of 7.99 with a Sharpe Ratio of 1.13 and a Treynor Ratio of 20.74. Its Beta is 0.75 while VHT’s Standard Deviation is 13.58. Furthermore, the fund has a Mean Return of 1.33 and a R-squared of 59.86.

AGG’s Mean Return is 1.05 points lower than that of VHT and its R-squared is 40.10 points higher. With a Standard Deviation of 3.03, AGG is slightly less volatile than VHT. The Alpha and Beta of AGG are 8.07 points lower and 0.26 points higher than VHT’s Alpha and Beta.

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Performance

Annual Returns

AGG vs. VHT - Annual Returns

Year AGG VHT
2020 7.42% 18.21%
2019 8.68% 21.97%
2018 -0.05% 5.55%
2017 3.53% 23.34%
2016 2.56% -3.33%
2015 0.48% 7.22%
2014 6.04% 25.38%
2013 -2.15% 42.67%
2012 4.04% 19.1%
2011 7.58% 10.57%
2010 6.3% 5.75%

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 VHT, returning 42.67% on an annual basis. The poorest year for VHT in the last ten years was 2016, with a yield of -3.33%. Most years the Vanguard Health Care Index Fund ETF Shares has given investors modest returns, such as in 2011, 2020, and 2012, when gains were 10.57%, 18.21%, and 19.1% respectively.

Portfolio Growth

AGG vs. VHT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
AGG $10,000 $15,368 4.04%
VHT $10,000 $48,464 16.04%

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 VHT, the end total would have been $48,464. This equates to a $38,464 profit over 11 years and a compound annual growth rate (CAGR) of 16.04%.

AGG’s CAGR is 12.00 percentage points lower than that of VHT and as a result, would have yielded $33,096 less on a $10,000 investment. Thus, AGG performed worse than VHT by 12.00% annually.


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