IShares Barclays Aggregate Bond Fund (AGG)

This article describes an exchange traded fund that tracks an index, commodity, currency, or varied basket of securites. View articles referencing this fund.

 

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Jonathan J. Smith

Ankur Dhamija

The iShares Barclays Aggregate Bond Fund (NYSE: AGG) is an Exchange Traded Fund (ETF) that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the total United States investment grade bond market as defined by the Barclays Capital U.S. Aggregate Bond Index.^[1] Such bonds cover a wide range of fixed income markets, including treasury bonds, corporate bonds and Mortgage-Backed Securities (MBS).^[1] The inconsistent performance of risk markets caused AGG's performance to also be inconsistent in the past fiscal year. Interest rate levels also drive the value of the bonds that AGG holds.

Business Growth

In the past fiscal year, AGG has seen inconsistent growth, as riskier, higher-returning assets (such as stocks) have seen growth, but have struggled to fully recover from the recession. In the current fiscal year, AGG's performance will hinge upon equities growth and the amount of debt issuance.^[2]

Trends and Forces

AGG's Performance is at Risk to Interest Rates

In general, as interest rates rise, bond prices fall (and vice-versa) due to discounting. From this, AGG's performance is dependent on the interest rate levels. Interest rate levels are determined by the Federal Reserve, who control money supply in the U.S.^[3]

Bonds are Anti-Correlation with Equities

Equity securities, such as stocks and stock market indices, typically garner a higher return than bonds at the cost of a higher risk of losing money. From this, investors would rather buy equities than bonds in low-risk environments (such as growth periods in the U.S. economy), and would rather buy bonds than equities during high-risk environments (such as recessions).

Competition

• Vanguard TTL Bond Mktetf (BND) BND holds similar securities as AGG.
• Vanguard Intermediate-Term Bond ETF (BIV) BIV also holds similar bonds as AGG, but only bonds with intermediate-term maturities.
• Vanguard SHRT TRM BD ETF (BSV) BSV also holds similar bonds as AGG, but only bonds with short-term maturities.

References

1. ↑ ^{1.0 1.1} iShares, "Barclays Aggregate Bond Fund Overview," 06/23/2011
2. ↑ Seeking Alpha, "The Fed's QE2 Intervention: Yields Continue to Explode Higher" 12/15/2010
3. ↑ Seeking Alpha, "Should You Be Selling Government Bonds? (PIMCO Is)," 01/14/2011