Although it isn’t the country’s largest bond-oriented exchange-traded fund, iShares Barclays Aggregate Bond Fund (symbol AGG) may be the best-known. That’s because it tracks the Barclays Capital U.S. Aggregate Bond index, a much-used proxy for the broader fixed-income market.
The "Agg,” as the index is often called, includes a wide range of investment-grade U.S. bonds, so “it’s like the S&P 500 for fixed income,” says Matt Tucker, of iShares. It’s also why this ETF is a popular core fixed-income holding. The index includes only dollar-denominated, taxable fixed-rate debt issued in the U.S., such as corporate bonds of both domestic and foreign firms, Treasuries, government-agency bonds, and mortgage- and other asset-backed bonds.
Like most bond ETFs, this iShares offering doesn’t exactly match its index, which in this case comprises about 8,000 securities. The fund creates a representative sample with about 1,500 holdings and sometimes buys a new issue ahead of the Agg—or sells one before or after the index has dropped it. Keeping the timing a little loose allows the fund to buy at better prices and “helps us track the index better long term,” Tucker says.
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The Agg adds and drops issues at the end of every month. To keep up with the benchmark, the ETF typically turns over its portfolio at an annual rate of about 130%, suggesting that the average holding stays in the fund for less than a year.
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