An ETF to consider because AGG is not the only basic bond option


The IShares Core US Aggregate Bond ETF (AGG) is not the ultimate solution to gaining exposure to core bonds when there are FlexShares options to consider.

One of these funds that can serve as an alternative to AGG is the FlexShares Core Select Bond Fund (BNDC). With a focus on getting exposure to core bonds through ETF holdings, this is essentially an ETF made up of ETFs.

This is one of the main differences between AGG and BNDC. AGG will expose investors to a variety of debt securities composed of individual bonds, namely safe-haven treasury bills.

The BNDC will also offer exposure to Treasuries, but as mentioned, through other ETFs as opposed to individual debt securities. It holds iShares Treasury funds with a variety of targeted terms of five, seven and 10 years as part of its main holdings.

Another main difference is that BNDC uses an active management approach as opposed to the passive management approach employed by AGG. Both funds focus on high quality debt securities so that fixed income investors get quality holdings that avoid too much credit risk.

Active management helps take the guesswork out of choosing the right bond ETFs for an investor’s portfolio. As such, the BNDC does all the heavy lifting and focuses on quality debt issuance to help minimize risk and capture maximum potential.

Thanks to its active management style, BNDC seeks total return and capital preservation. The fund invests at least 80% of its net assets in investment grade fixed income securities denominated in US dollars, directly or indirectly through exchange traded funds and other registered investment companies.

Keeping Up With AGG

For potential investors wondering how BNDC stacks up against AGG, they are relatively even on the three-year chart. In a traditional 60-40 portfolio, BNDC can serve as a core bond exposure alone or in tandem with a fund like AGG to achieve a passive-active allocation.

“The fund of funds model used by the FlexShares Core Select Bond Fund (BNDC) gives investors access to the institutional fixed income expertise of Northern Trust,” said a FlexShares Fund Focus. “The Fund’s portfolio managers have the flexibility to change the duration and risk allocation of the Fund in response to changes in interest rates or levels of risk in various industries. “

“This ability to make tactical adjustments allows Fund managers to express their current views on developments in the fixed income market, which can help investors seize opportunities while managing risk,” added FlexShares.

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