BND vs. AGG - Which Bond ETF Is Better?

BND vs. AGG – Which Bond ETF Is Better?

BND and AGG are two of the most popular bond ETFs on the market. They are issued by two financial giants in the investment space: Vanguard and iShares. Both funds have certain advantages and drawbacks but which fund is actually better?

BND has a compound annual growth rate of 4.31%, while AGG has a compound annual growth rate of 4.37%. however, AGG is also more volatile than BND 3.81% annualized vs. 3.71%. this also leads to a higher maximum drawdown in AGG for the period tested. Even though AGG has a slightly higher expense ratio of 0.04% it manages to compensate that deficiency and help perform BND overall.

BND vs. AGG – Overview

In this comparison, we will look at the differences between BND and AGG. we will start by comparing key differences in build and composure as well as differences in the expense ratio and index.

In the second part of this article, we will examine how both funds are composed in terms of credit quality and fixed income maturity. Finally, we will also compare their overall returns and select a winner.

What’s The Difference?

NameVanguard Total Bond Market ETFiShares Core U.S. Aggregate Bond ETF
IndexBloomberg Barclays U.S. Aggregate Float Adjusted IndexBBG Barc U.S. Aggregate Index
Expense Ratio0.035%0.04%
Inception Date4/10/20079/22/2003
BND vs. AGG – Key Differences


The Vanguard Total Bond Market ETF (BND) tracks the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. This index only includes United States bonds and excludes all international debt. Furthermore, only corporate and investment-grade bonds are included not extending to US agency debentures.

The iShares Core U.S. Aggregate Bond ETF (AGG) tracks the BBG Barc U.S. Aggregate Index. This index includes more than 8000 United States bonds excluding international bonds as well

Both indexes are are essentially equal however the float adjusted index of BND excludes certain US agency debt.

Expense Ratio

BND has an expense ratio of 0.035%. The expense ratio used to be 0.04% before Vanguard lowered it again at the beginning of last year. With an expense ratio close to 0 BND delivers more value and diversity of holdings than most other bond funds.

AGG has an expense ratio of 0.04%. This is still considered very low even in today’s financial and investment environment. Since Vanguard actually operates at-cost it can be extremely difficult for for-profit operators 2 to keep up up-do with vanguard aggressive fee reduction.

However, small and the difference in fees may be between these funds even small all differences can add up over time I’m when taking into account compound interest and growth over a lifetime.


BND is issued by Vanguard. Vanguard is an excellent provider of low-cost mutual and exchange-traded funds and is highly suitable for us retail investors. But not only are their funds extremely cheap and tax-efficient, but the entire company is also set up to profit the individual investor most.

AGG is issued by iShares. iShares is a global giant of index funds. While Vanguard is more focused on creating the most enticing domestic investment products iShares has chosen a more globalized approach offering ETFs in over 50+ countries locally.

BND vs. AGG – Fund Composition

In the next few paragraphs we will dive a bit deeper in this comparison between BND and AGG. We all take a look at their respective credit quality and fixed income maturity.

Credit Quality

BND – Credit Quality

BND is made up of AAA, AA, A and BBB investment-grade debt. However, the largest share is made up of AAA-rated bonds at 68%. This is followed then by BBB-rated bonds at 18% and A-rated bonds at 11%.

Non-investment grade bonds are not included in the fund. In terms of risk, BND relies mostly on high rated debt making possible defaults less likely.

AGG - Credit Quality
AGG – Credit Quality

AGG is mostly comprised of AAA-rated bonds. BBB-rated bonds and A-rated bonds only play a secondary role in the fund’s composition. The highest-rated bonds make up almost three-quarters of the fund at 74%. Lower rated bonds only make up 12 and 11% respectively.

Although the difference between these two funds is not that apparent first it does become more visible when examining credit quality, BND relies less on AAA-rated bonds and as a result, includes more lower-rated and potentially higher earning bonds.

We will see you later on when comparing performance whether the difference in fund composition actually impacts returns.


The variation in ETF bond maturities may play a major role in reducing interest rate risks. Longer maturity bonds are much more vulnerable to interest rate movements on a price-action basis. Nonetheless, long-term bonds outperform short-term bonds with respect

BND - Fixed Income Maturity
BND – Fixed Income Maturity

BND holds bonds ranging from 1 to 30 + years in maturity. Bonds with charities of 20 to 30 years makeup by far the largest portion of BND at 32.5%. the remaining 70% is distributed among bonds ranging in maturity from 1 to 10 years and 10 to 20 years.

This distribution is fairly common in total bond market ETF. We will see in a bit bad the difference between BND vs AGG is almost negligible.

AGG - Fixed Income Maturity
AGG – Fixed Income Maturity

AGG holds mostly bonds with maturities between 20-30 years. Long-term bonds of 20-30 years make up the bulk of debt in AGG at over 35%. Bonds ranging in maturity from 1 to 10 years make up the second-largest fragment.

While the differences between BND and AGG are not extreme when it comes to their maturities, there are a few things to highlight:

AGG is slightly heavier weighted towards long-term bonds of 20-30 years than BND. BND has more exposure to a very long-term debt of 30+ years. Also, short-term bonds of only 1 year or less are more frequent in BND than in AGG.

Overall, however, both funds provide a solid and diverse exposure to the total domestic bond market.

BND vs. AGG – Analysis

Volatility (monthly)1.07%1.10%
Volatility (annualized)3.71%3.81%
Downside Deviation (monthly)0.55%0.54%
Max. Drawdown-4.01%-4.31%
US Market Correlation0.070.04
BND vs. AGG – Risk Metrics


BND has an annual volatility of 3.71% (1.07% monthly). The volatility of bond funds tends to always be far less than the corresponding total stock market funds. This makes sense since these fixed-income holdings are meant to stabilize portfolio growth or smooth the transition into retirement where huge swings in portfolio value are of little use.

AGG has an annual volatility of 3.81% (1.10% monthly). This is slightly higher than that of BND. Most likely this is due to the fact that AGG is more exposed to longer-term bonds which tend to be a bit more price-reactive to economic news.

However, mild swings like the ones above are to be expected in almost any investment product and both funds do excellent jobs of mitigating the higher volatility of a 100% stock portfolio.


BND vs. AGG - Drawdowns
BND vs. AGG – Drawdowns

BND experiences drawdowns up to -4.0% throughout the years. Major drawdowns occurred in 2008/2009 when the financial crisis hit the world’s banks and the U.S. in particular, again in 2013/2014 and most recently in 2017. The current drawdown (2020) of the stock market is not reflected much in either fund.

AGG also experienced drawdowns close to -4.0% during the same period. However, in most instances, AGG manages to recover faster. Overall, the maximum drawdown that AGG experienced is still higher than that of BND at -4.31%.

The statements about volatility and maximum drawdown are certainly only true for the examined time period above. It would be foolish to say that either will never experience higher negative levels or increased volatility.

BND vs. AGG– Performance

Performance and overall returns are – of course – the key indicators of a fund’s success in the eyes of every investor. Since we discussed many of the differences in the composition above, it will be easier to now see how these affect returns. The following is a backtest of $10,000 invested in BND and AGG at the beginning of 2008. These are the annual returns:

Annual Returns

BND vs. AGG - Annual Returns
BND vs. AGG – Annual Returns

For the most part, BND yielded moderate positive returns. 2019 and 2020 have been especially profitable for the fund. Typically, when insecurities about the performance of the stock market are high, bond funds profit. The profits also usually correlate with a decrease in interest rates.

AGG sees slightly higher returns in some years. Especially, in 2012, 2013 and 2014 AGG seems to overwhelmingly outperform BND. However, the tides turn after 2014. Ever so slightly BND outperforms AGG for almost all years since 2015.

It remains to be seen whether this trend will continue. For now, AGG comes out ahead slightly in most years.

Portfolio Growth

BND vs. AGG - Portfolio Growth
BND vs. AGG – Portfolio Growth
PortfolioInitial BalanceFinal BalanceCAGR
BND$10,000$17,000 4.31% 
AGG$10,000$17,130 4.37%
BND vs. AGG – Portfolio Backtest

A $10,000 investment in BND would have resulted in $17,000  by now. This is equal to an average growth rate of 4.31%. Compared to stocks these returns falls significantly short of the average 7-8%, however, bond funds shine in their ability to provide a fixed source of income. With a CAGR of over 4%, BND has certainly delivered on that promise.

A $10,000 investment in AGG would have resulted in $17,130. This is equal to a CAGR of 4.37%. In total, an investment in AGG would have yielded $130 more than the same investment in BND.

As with the annual returns, it remains difficult if not impossible to predict which fund will outperform which in the future. Especially, considering the last 5 years, we have seen that BND is catching up fast.


Conclusively, BND, and AGG are both excellent bond ETFs. The question of which one to choose almost only comes down to a matter of personal preference.

The only significant differentiating factor really is the expense ratio. Sure, AGG yielded slightly more in our backtest and is slightly more volatile than BND but not to a degree you would notice in your portfolio balance.

I – personally – prefer to stick with a company that has proven time and time again that it is willing to put individual investors before profits: Vanguard. Plus, we can surely count on Vanguard to be among the first to reduce fees further if at-cost operation so permits. That’s why BND is part of my portfolio.


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