AGG vs. VNQ: What’s The Difference?

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

The expense ratio of AGG is 0.08 percentage points lower than VNQ’s (0.04% vs. 0.12%). AGG is mostly comprised of AAA bonds while VNQ has a high exposure to the real estate sector. Overall, AGG has provided lower returns than VNQ over the past ten years.

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

Summary

AGG VNQ
Name iShares Core U.S. Aggregate Bond ETF Vanguard Real Estate Index Fund ETF Shares
Category Intermediate-Term Bond Real Estate
Issuer iShares Vanguard
AUM 88.8B 77.34B
Avg. Return 4.04% 11.05%
Div. Yield 1.95% 2.34%
Expense Ratio 0.04% 0.12%

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 Real Estate Index Fund ETF Shares (VNQ) is a Real Estate fund that is issued by Vanguard. It currently has 77.34B total assets under management and has yielded an average annual return of 11.05% over the past 10 years. The fund has a dividend yield of 2.34% with an expense ratio of 0.12%.

AGG’s dividend yield is 0.39% lower than that of VNQ (1.95% vs. 2.34%). Also, AGG yielded on average 7.01% less per year over the past decade (4.04% vs. 11.05%). The expense ratio of AGG is 0.08 percentage points lower than VNQ’s (0.04% vs. 0.12%).

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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.

VNQ - Holdings

VNQ Holdings Weight
Vanguard Real Estate II Index 11.62%
American Tower Corp 7.24%
Prologis Inc 5.33%
Crown Castle International Corp 5.01%
Equinix Inc 4.3%
Public Storage 2.85%
Simon Property Group Inc 2.52%
Digital Realty Trust Inc 2.49%
SBA Communications Corp 2.1%
Welltower Inc 2.09%

VNQ’s Top Holdings are Vanguard Real Estate II Index, American Tower Corp, Prologis Inc, Crown Castle International Corp, and Equinix Inc at 11.62%, 7.24%, 5.33%, 5.01%, and 4.3%.

Public Storage (2.85%), Simon Property Group Inc (2.52%), and Digital Realty Trust Inc (2.49%) have a slightly smaller but still significant weight. SBA Communications Corp and Welltower Inc are also represented in the VNQ’s holdings at 2.1% and 2.09%.

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Risk Analysis

AGG VNQ
Mean Return 0.28 0.89
R-squared 99.96 44.4
Std. Deviation 3.03 16.13
Alpha -0.08 2.47
Beta 1.01 0.76
Sharpe Ratio 0.9 0.62
Treynor Ratio 2.7 11.9

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

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a R-squared of 44.4 with a Alpha of 2.47 and a Beta of 0.76. Its Standard Deviation is 16.13 while VNQ’s Mean Return is 0.89. Furthermore, the fund has a Treynor Ratio of 11.9 and a Sharpe Ratio of 0.62.

AGG’s Mean Return is 0.61 points lower than that of VNQ and its R-squared is 55.56 points higher. With a Standard Deviation of 3.03, AGG is slightly less volatile than VNQ. The Alpha and Beta of AGG are 2.55 points lower and 0.25 points higher than VNQ’s Alpha and Beta.

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Performance

Annual Returns

AGG vs. VNQ - Annual Returns

Year AGG VNQ
2020 7.42% -4.72%
2019 8.68% 28.91%
2018 -0.05% -5.95%
2017 3.53% 4.95%
2016 2.56% 8.53%
2015 0.48% 2.37%
2014 6.04% 30.29%
2013 -2.15% 2.42%
2012 4.04% 17.67%
2011 7.58% 8.62%
2010 6.3% 28.44%

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 2014 was the strongest year for VNQ, returning 30.29% on an annual basis. The poorest year for VNQ in the last ten years was 2018, with a yield of -5.95%. Most years the Vanguard Real Estate Index Fund ETF Shares has given investors modest returns, such as in 2017, 2016, and 2011, when gains were 4.95%, 8.53%, and 8.62% respectively.

Portfolio Growth

AGG vs. VNQ - Portfolio Growth

Fund Initial Balance Final Balance CAGR
AGG $10,000 $15,368 4.04%
VNQ $10,000 $29,506 11.05%

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 VNQ, the end total would have been $29,506. This equates to a $19,506 profit over 11 years and a compound annual growth rate (CAGR) of 11.05%.

AGG’s CAGR is 7.01 percentage points lower than that of VNQ and as a result, would have yielded $14,138 less on a $10,000 investment. Thus, AGG performed worse than VNQ by 7.01% annually.


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