AGG vs. VCIT: The Same Tiny Fee, Completely Different Holdings

The Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ:VCIT) and the iShares Core US Aggregate Bond ETF (NYSEMKT:AGG) both offer low costs, but differ in yield, risk, and the breadth of their bond portfolios.

Both VCIT and AGG are designed for investors seeking steady income and moderate risk from U.S. bonds. While VCIT concentrates on investment-grade corporate bonds with intermediate maturities, AGG provides exposure to the entire U.S. investment-grade bond market, including government, mortgage-backed, and corporate bonds. This comparison unpacks their differences in cost, performance, risk, and holdings.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

Both funds are equally affordable at 0.03% in annual expenses, but VCIT has a higher yield, which may appeal to those prioritizing income. AGG’s slightly lower payout is offset by its larger and more diversified assets under management (AUM).

Performance & risk comparison

What's inside

AGG tracks the total U.S. investment-grade bond market, resulting in a highly diversified portfolio of 13,015 holdings. AGG’s 22.3-year history and broad composition make it a core holding for many investors who want comprehensive fixed-income exposure.

By contrast, VCIT focuses specifically on intermediate-term investment-grade corporate bonds, holding 343 securities. Its top holdings include Apple, Meta Platforms, and Pfizer. This gives VCIT a distinct corporate tilt, which may boost yield but can also increase sensitivity to credit risk compared to AGG’s broader mix.

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What this means for investors

Bond ETFs serve as the stability anchor in most portfolios, generating steady income while stocks bounce around. Unlike stock ETFs that buy company shares, bond ETFs hold debt—essentially IOUs from governments or corporations that pay regular interest. AGG and VCIT represent two different strategies for capturing that income, and choosing between them hinges on how much corporate risk you're willing to accept.

AGG spreads its bets across the entire investment-grade U.S. bond market, including government Treasuries, mortgage-backed securities, and corporate bonds. VCIT narrows its focus to corporate debt from companies like Apple, Meta Platforms, and Pfizer, holding only bonds maturing in five to 10 years. That approach pays a 4.6% yield versus AGG's 3.9%, meaning you'd collect roughly $70 more per year in interest on every $10,000 invested. Both funds charge identical rock-bottom fees of 0.03%.

Risk-averse investors wanting maximum diversification and stability during downturns should choose AGG for its government-heavy mix and massive $135 billion liquidity cushion. Yield-focused investors comfortable with corporate credit risk should explore VCIT, accepting modestly higher volatility for better income and recent performance.

Glossary

ETF (Exchange-traded fund): A fund trading on stock exchanges, holding a basket of underlying assets.
Expense ratio: Annual fund operating costs expressed as a percentage of the fund's average assets.
Dividend yield: Annual dividends paid by a fund divided by its current share price.
Beta: A measure of how volatile an investment is compared with a benchmark, often the S&P 500.
Total return: Investment performance including price changes plus all dividends and interest, assuming reinvestment.
Max drawdown: The largest peak-to-trough decline in value over a specific period.
Investment-grade bond: A bond rated as relatively low risk of default by major credit rating agencies.
Corporate bond: A debt security issued by a company to raise capital, paying investors interest over time.
Government bond: A debt security issued by a national government, generally considered lower credit risk.
Mortgage-backed security: A bond backed by a pool of home or other real estate loans.
Intermediate-term bond: A bond with a maturity typically between five and 10 years.
Assets under management (AUM): The total market value of assets a fund or manager oversees.

Sara Appino has positions in Apple. The Motley Fool has positions in and recommends Apple, Meta Platforms, and Pfizer. The Motley Fool has a disclosure policy.