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AGG vs. VTIP: What’s The Difference?

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

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

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

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Summary

AGGVTIP
NameiShares Core U.S. Aggregate Bond ETFVanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares
CategoryIntermediate-Term BondInflation-Protected Bond
IssueriSharesVanguard
AUM88.8B50.67B
Avg. Return4.04%1.79%
Div. Yield1.95%1.35%
Expense Ratio0.04%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 Inflation-Protected Securities Index Fund ETF Shares (VTIP) is a Inflation-Protected Bond fund that is issued by Vanguard. It currently has 50.67B total assets under management and has yielded an average annual return of 1.79% over the past 10 years. The fund has a dividend yield of 1.35% with an expense ratio of 0.05%.

AGG’s dividend yield is 0.60% higher than that of VTIP (1.95% vs. 1.35%). Also, AGG yielded on average 2.25% more per year over the past decade (4.04% vs. 1.79%). The expense ratio of AGG is 0.01 percentage points lower than VTIP’s (0.04% vs. 0.05%).

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Fund Composition

Holdings

AGG - Holdings

AGG Bond SectorsWeight
AAA68.92%
BBB15.38%
A11.16%
AA2.92%
Others1.63%
Below B0.0%
B0.0%
BB0.0%
US Government0.0%

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.

VTIP - Holdings

VTIP Bond SectorsWeight
AAA99.87%
Others0.13%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

VTIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.87%, 0.13%, 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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Risk Analysis

AGGVTIP
Mean Return0.280
R-squared99.960
Std. Deviation3.030
Alpha-0.080
Beta1.010
Sharpe Ratio0.90
Treynor Ratio2.70

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

The Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) has a R-squared of 0 with a Alpha of 0 and a Beta of 0. Its Sharpe Ratio is 0 while VTIP’s Standard Deviation is 0. Furthermore, the fund has a Treynor Ratio of 0 and a Mean Return of 0.

AGG’s Mean Return is 0.28 points higher than that of VTIP and its R-squared is 99.96 points higher. With a Standard Deviation of 3.03, AGG is slightly more volatile than VTIP. The Alpha and Beta of AGG are 0.08 points lower and 1.01 points higher than VTIP’s Alpha and Beta.

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Performance

Annual Returns

AGG vs. VTIP - Annual Returns

YearAGGVTIP
20207.42%4.97%
20198.68%4.83%
2018-0.05%0.54%
20173.53%0.82%
20162.56%2.71%
20150.48%-0.15%
20146.04%-1.17%
2013-2.15%-1.55%
20124.04%0.0%
20117.58%0.0%
20106.3%0.0%

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 2020 was the strongest year for VTIP, returning 4.97% on an annual basis. The poorest year for VTIP in the last ten years was 2013, with a yield of -1.55%. Most years the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares has given investors modest returns, such as in 2011, 2010, and 2018, when gains were 0.0%, 0.0%, and 0.54% respectively.

Portfolio Growth

AGG vs. VTIP - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
AGG$10,000$13,2014.04%
VTIP$10,000$11,3051.79%

A $10,000 investment in AGG would have resulted in a final balance of $13,201. This is a profit of $3,201 over 7 years and amounts to a compound annual growth rate (CAGR) of 4.04%.

With a $10,000 investment in VTIP, the end total would have been $11,305. This equates to a $1,305 profit over 7 years and a compound annual growth rate (CAGR) of 1.79%.

AGG’s CAGR is 2.25 percentage points higher than that of VTIP and as a result, would have yielded $1,896 more on a $10,000 investment. Thus, AGG outperformed VTIP by 2.25% annually.


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