What AGG actually is

AGG is an iShares ETF that tracks an index measuring the total US investment-grade bond market. It invests at least 80% of its assets in the index components and related securities, and at least 90% in fixed-income securities of the types included in the index.

It launched in 2003 and is one of the largest bond ETFs in the world.

What is inside

Thousands of bonds: US Treasuries and other government debt, corporate bonds from creditworthy companies and mortgage-backed securities. It spreads the risk of any single bond defaulting across the whole market.

Distributions

Bond funds pass on the interest they receive, which AGG typically pays monthly. Strictly speaking, these are interest distributions, not dividends from company profits. The yield changes as bonds mature and are replaced. Check the fund’s current yield, fees and distribution schedule on the issuer’s website, because they change.

What to keep in mind

  • Interest-rate risk. When rates rise, existing bond prices fall, and so does the fund’s price.
  • Inflation. It can erode the real value of fixed payments.
  • Credit risk. It is lower than in high-yield bonds but not zero.
  • Lower long-term growth. Bonds usually offer less growth than stocks.

Quick take

AGG is a stabiliser for a portfolio: bonds for income and lower volatility. Compare it with Vanguard’s equivalent on our AGG vs BND page.