Key Morningstar Metrics for iShares U.S. Aggregate Bond Index ETF XAGG
- : SilverMorningstar Medalist Rating
- : Above AverageProcess Pillar
- : Above AveragePeople Pillar
- : Above AverageParent Pillar
IShares Core US Aggregate Bond’s steady portfolio makes its cheapest share classes attractive.
The 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 of each bond’s relative value.
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 45% 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 around 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 fund’s return or yield potential, yet it also should insulate it from the volatility of riskier bonds.
This fund won’t always be less volatile than its average peer, though. Until recently, it has had a longer average effective duration, a measure of interest rate sensitivity, so rate changes can nudge its return more than comparable portfolios with shorter durations. Indeed, in the 10 years through February 2026, the US exchange-traded fund version of this strategy was more volatile than its average peer, as measured by standard deviation.
iShares U.S. Aggregate Bond Index ETF: Performance Highlights
IShares Core US Aggregate Bond ETF’s 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 February 2026. Its Treasury-heavy portfolio also helped it capture just 92% of the category norm’s downside. Volatility was almost identical.
The fund’s high average credit quality makes it a good portfolio ballast and insulates it from credit shocks. For example, the fund 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 fund can underperform at times, though. Its conservative portfolio and historically longer-than-average duration can work against it. The ETF fell harder than its peers in late 2016 when long-term yields unexpectedly rose, and it fell by more than 13% in 2022 because of 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 fund’s conservative portfolio and low fee should drive its results over the long term.
