AGG vs. VWO: What’s The Difference?

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

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

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

Summary

AGG VWO
Name iShares Core U.S. Aggregate Bond ETF Vanguard FTSE Emerging Markets Index Fund ETF Shares
Category Intermediate-Term Bond Diversified Emerging Mkts
Issuer iShares Vanguard
AUM 88.8B 117.28B
Avg. Return 4.04% 5.79%
Div. Yield 1.95% 1.98%
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 FTSE Emerging Markets Index Fund ETF Shares (VWO) is a Diversified Emerging Mkts fund that is issued by Vanguard. It currently has 117.28B total assets under management and has yielded an average annual return of 5.79% over the past 10 years. The fund has a dividend yield of 1.98% with an expense ratio of 0.1%.

AGG’s dividend yield is 0.03% lower than that of VWO (1.95% vs. 1.98%). Also, AGG yielded on average 1.75% less per year over the past decade (4.04% vs. 5.79%). The expense ratio of AGG is 0.06 percentage points lower than VWO’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.

VWO - Holdings

VWO Holdings Weight
Tencent Holdings Ltd 5.29%
Alibaba Group Holding Ltd Ordinary Shares 4.73%
Taiwan Semiconductor Manufacturing Co Ltd 4.58%
Meituan 1.88%
Taiwan Semiconductor Manufacturing Co Ltd ADR 1.7%
Reliance Industries Ltd Shs Dematerialised 1.06%
Naspers Ltd Class N 1.01%
Vale SA 0.92%
Infosys Ltd 0.91%
China Construction Bank Corp Class H 0.84%

VWO’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Taiwan Semiconductor Manufacturing Co Ltd, Meituan, and Taiwan Semiconductor Manufacturing Co Ltd ADR at 5.29%, 4.73%, 4.58%, 1.88%, and 1.7%.

Reliance Industries Ltd Shs Dematerialised (1.06%), Naspers Ltd Class N (1.01%), and Vale SA (0.92%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the VWO’s holdings at 0.91% and 0.84%.

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Risk Analysis

AGG VWO
Mean Return 0.28 0.45
R-squared 99.96 81.69
Std. Deviation 3.03 17.64
Alpha -0.08 -1.36
Beta 1.01 1.06
Sharpe Ratio 0.9 0.27
Treynor Ratio 2.7 3.14

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

The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Beta of 1.06 with a Treynor Ratio of 3.14 and a R-squared of 81.69. Its Alpha is -1.36 while VWO’s Mean Return is 0.45. Furthermore, the fund has a Sharpe Ratio of 0.27 and a Standard Deviation of 17.64.

AGG’s Mean Return is 0.17 points lower than that of VWO and its R-squared is 18.27 points higher. With a Standard Deviation of 3.03, AGG is slightly less volatile than VWO. The Alpha and Beta of AGG are 1.28 points higher and 0.05 points lower than VWO’s Alpha and Beta.

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Performance

Annual Returns

AGG vs. VWO - Annual Returns

Year AGG VWO
2020 7.42% 15.32%
2019 8.68% 20.4%
2018 -0.05% -14.57%
2017 3.53% 31.38%
2016 2.56% 11.75%
2015 0.48% -15.35%
2014 6.04% 0.6%
2013 -2.15% -5.0%
2012 4.04% 18.84%
2011 7.58% -18.68%
2010 6.3% 18.99%

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 2017 was the strongest year for VWO, returning 31.38% on an annual basis. The poorest year for VWO in the last ten years was 2011, with a yield of -18.68%. Most years the Vanguard FTSE Emerging Markets Index Fund ETF Shares has given investors modest returns, such as in 2014, 2016, and 2020, when gains were 0.6%, 11.75%, and 15.32% respectively.

Portfolio Growth

AGG vs. VWO - Portfolio Growth

Fund Initial Balance Final Balance CAGR
AGG $10,000 $15,368 4.04%
VWO $10,000 $16,200 5.79%

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 VWO, the end total would have been $16,200. This equates to a $6,200 profit over 11 years and a compound annual growth rate (CAGR) of 5.79%.

AGG’s CAGR is 1.75 percentage points lower than that of VWO and as a result, would have yielded $832 less on a $10,000 investment. Thus, AGG performed worse than VWO by 1.75% annually.


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