Bond ETF Titans Head-to-Head

by on October 7, 2014

The Barclays Capital U.S. Aggregate Bond Index is among the most popular fixed income benchmarks in the world. So popular, in fact, that it has become synonymous with the term “total bond market.” With nearly 9,000 bonds under its wing, the index has been tracked by funds of all shapes and sizes around the industry. In the ETF world there are three funds that track the index with no bells or whistles added on and one that tracks a similar, float-adjusted version. That number may sound low, but when you consider that there are four ETFs designed to do nearly the exact same thing, it can be a little surprising [for more ETF news and analysis subscribe to our free ETF Daily Roundup].

The funds in question are popular players that you are undoubtedly familiar with: the Total Bond Market ETF (BND), Core Total U.S. Bond Market ETF (AGG), U.S. Aggregate Bond ETF (SCHZ), and the SPDR Barclays Aggregate Bond ETF (LAG). On the surface, the funds are relatively similar, so we broke down some of the key metrics in the following table:

 Issuer Vanguard iShares Charles Schwab State Street
Inception 4/3/2007 9/22/2003 7/14/2011 5/23/2007
Assets $23,300M $19,700M $930M $740M
 # of Holdings 6730 2784 1892 1623
 Expense Ratio 0.08% 0.08% 0.06% 0.16%
 3 Year Return 5.34% 7.22% 6.87% 6.86%

Breaking Down BND

There’s a lot to like about BND, especially from a diversity standpoint. BND has, by far, the deepest portfolio of its peers to help spread exposure and mitigate risk. It is also the largest bond ETF on the world as well as one of the most active, keeping spreads low and making it an efficient investment. Note that BND actually tracks the Barclays Capital U.S. Aggregate Float Adjusted Bond Index, which (as the name suggests) is just a float-adjusted version of the benchmark. It may not be the oldest player in the game, but for those looking for a wide portfolio of bonds, BND is hard to beat.

Breaking Down AGG

AGG was the fifth ever bond ETF to launch, so it easily has the longest track record of any of the four. The fund has managed to rake in a sizable amount of assets with a relatively healthy portfolio spread. While past performance does not necessarily indicate future results, AGG has outperformed its peers over the last three years. The major difference between AGG and BND is portfolio depth; deciding between the two will depend on how many bonds you want exposure to, as BND has more than twice the holdings of AGG.

Breaking Down SCHZ

Schwab introduced this fund in 2011 with one goal in mind: to undercut the competition with a cheaper price. It would appear that the strategy has been relatively effective, as the ETF charges just 6 basis points for investment and has already garnered a healthy amount of assets for a younger product. SCHZ stands out from a cost perspective, plain and simple. If you are looking to shave off every expense you can, SCHZ is a great option. However, if a few basis points does not bother you, SCHZ’s portfolio is a bit shallower than the aforementioned funds, which may be a turn off for some.

Breaking Down LAG

To be perfectly frank, LAG is the only fund that fails to set itself apart from the group. It is not only the most expensive (by far), but it has the shallowest portfolio and the lowest asset base. The latter is somewhat surprising given that it is a State Street product. There seems to be little if any reason to invest in LAG over its competition, as it is simply outdone by its peers.

The Bottom Line

There are multiple ways to achieve exposure to the total bond market using ETFs. Investors need to make sure they do their homework and understand the differences between these four funds in order to choose the right fund for them.

Follow me on Twitter @JaredCummans.

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Disclosure: No positions at time of writing.