Why iShares Core US Aggregate Bond ETF Is a Great Index Fund

Key Morningstar Metrics for iShares Core US Aggregate Bond ETF

• Morningstar Medalist Rating: Gold
• Process Pillar: Above Average
• People Pillar: Above Average
• Parent Pillar: Above Average

IShares Core US Aggregate Bond ETF AGG’s steady portfolio makes its cheapest share classes attractive.

The exchange-traded fund tracks the Bloomberg US Aggregate Bond Index, which includes taxable, investment-grade US bonds with at least one year remaining until maturity. Its final portfolio is market-value weighted, which emphasizes the most liquid issues and harnesses the market’s collective wisdom on the relative value of each bond.

The portfolio is shaped by the issuing activity of the US investment-grade market, which is heavily influenced by the US Treasury. Treasury securities now claim more than 47% of the portfolio after increasing their share of the total bond market in recent years. The average rival in the category also owns more Treasuries than it used to, but it still has far less in Treasuries—typically less than 30%—than this portfolio does. Competitors own more securitized fare to make up the difference.

The big government bond stake, however, mutes credit risk. About 75% of fund assets are in securities with AA or AAA credit ratings, several percentage points higher than the average Morningstar Category peer. Unlike some peers, the fund cannot hold sub-investment-grade debt. Omitting high-yield bonds and focusing on ultrasafe government securities may restrict the ETF’s return or yield potential, yet it also should insulate the ETF from the volatility of riskier bonds.

This ETF won’t always be less volatile than its average peer, though. It has a longer average effective duration, a measure of interest rate sensitivity, so rate changes can whip it around. Indeed, in the 10 years through May, it was more volatile than its average peer, as measured by standard deviation.

iShares Core US Aggregate Bond ETF: Performance Highlights

iShares Core US Aggregate Bond ETFs’ conservative bent and low fees limit its drawdowns and help returns. The ETF beat the intermediate core bond category average by 18 basis points annualized for the past 20 years through May 2025. Its Treasury-heavy portfolio also helped it capture just 93% of the category norm’s downside. Volatility was almost identical.

The ETF’s high credit-quality leanings make it a good portfolio ballast and insulate it from credit shocks. For example, the ETF fared better than most during 2020’s coronavirus-driven shock. From Feb. 20, 2020, through March 23, 2020, the ETF lost 1.4 percentage points less than the category norm.

The ETF can underperform at times, though. Its conservative portfolio and historically longer-than-average duration can work against it. The ETF fell harder than peers in late 2016 when long-term yields unexpectedly rose, and it fell by more than 13% in 2022 due to inflation concerns. Peers did just as poorly in 2022, but that year shows that even a relatively conservative portfolio may endure some bumps. Performance fluctuations will occur from time to time, but the ETF’s conservative portfolio and low fee should drive its results over the long term.