Skip to Content
Fund Spy

What Gives an Edge to iShares Core US Aggregate Bond ETF?

AGG is one of the best bond funds around, says Morningstar's analyst. Here's why.

Mentioned:

IShares Core U.S. Aggregate Bond ETF's (AGG) FEUSA low fee and conservative portfolio make it hard to beat. The fund earns a Morningstar Analyst Rating of Gold.

The strategy tracks the Bloomberg U.S. Aggregate Bond Index, which includes taxable, investment-grade U.S.-dollar-denominated bonds with at least one year until maturity. Most qualifying bonds fall into three categories: U.S. Treasuries, corporate bonds, or agency mortgage-backed securities. The index weights its holdings according to market value, tilting the portfolio toward the largest and most liquid issues. Consequently, the portfolio accurately represents the U.S. investment-grade bond market.

The U.S. government is the world's largest debt issuer. At the end of 2021, the total market value of U.S. government bonds was more than twice that of all U.S. corporations. As of April 2022, the fund invested 41% of its assets in government securities, while its average peer held just 32%. Conversely, the fund held 29% of its portfolio in securitized debt compared with 33% for its average peer.

About 72% of the fund's assets carried a AAA credit rating as of April 2022, while the corresponding figure for the intermediate core bond Morningstar Category average was 50%. The fund's category-relative performance will largely hinge on the performance of credit-risky bonds. It should hold up well during periods when credit markets are stressed, but it will lag when they rally.

As it takes little credit risk, the primary driver of the fund's absolute performance will be interest-rate risk. As of March 2022, its average effective duration was approximately 6.78 years, which was slightly higher than its peers.

While taking less credit risk than peers can put the fund at a disadvantage during calm markets, the fund's low fee should help it to keep pace. The fund's 0.03% annual fee is 56 basis points below the intermediate core bond category average.

Key Proprietary Morningstar Metrics

Morningstar Analyst Rating: Gold
Process Pillar: Above Average
People Pillar: Above Average
Parent Pillar: Above Average

Start your free 14-day trial of Morningstar Premium. Rely on the gold standard for mutual fund and ETF research. Unlock our analysts' ratings to see which funds we think will outperform the market.

Bryan Armour does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.