AGG holds a portfolio of investment-grade U.S. bonds and distributes monthly dividends. The following profile shows that AGG is an established fund that operates at a high rate of turnover.
The AGG scorecard (below) reveals a wealthy, experienced index fund that invests in a well-developed market for bonds. The fund is tax inefficient due to the high rate of turnover of portfolio holdings. The risks to portfolio underperformance are 1) erroneous sampling of the bond index, 2) erroneous judgment in management of the portfolio holdings, and 3) generic risks of investing in the bond market.
AGG is a registered investment company for tax purposes. Its strategy is to invest 95% of capital in a diversified basket of U.S. investment grade bonds that serve as a representative sample of the benchmark index. The portfolio’s profile is that of an average A credit rating of the issuers, average intermediate term bonds, average 4.86% effective duration, average 4.06% weighted coupon, and average $107.46 weighted price. The remaining 5% of capital resides in cash-equivalent securities and bonds excluded from the index. Fund management may lend up to 33% of the underlying securities to outside investors. High portfolio turnover rate will increase the Fund’s operating expenses.
The benchmark Index measures the performance of the total U.S. investment grade bond market. The bonds must be USD denominated, non-convertible, and have a fixed rate. The Index is updated monthly.
Fluctuating interest rates in the bond market may reduce the investment performance of the Fund. In the case of declining interest rates, the Fund may replace Called bonds with those of lower interest rates. During periods of rising interest rates, long-term bonds with low interest rates will effectively reduce the Fund’s income. Rising interest rates can also lower the market value of the bonds. A portion of the Fund’s mortgage-backed securities are not issued by government agencies and are therefore not protected against default.
AGG is a good investment for diversifying your ETF portfolio.