Barclays Aggregate Bond Index

 

As of the beginning of 2013, the Barclays Capital U.S. Aggregate Bond Index was comprised of ~ $16 trillion worth of domestic investment-grade bonds. Relative to equities, there is a disproportionate tilt toward passive investing in fixed income; the Barclays index is widely considered the best benchmark for efficient asset allocation. The iShares Barclays Aggregate Bond ETF (symbol AGG) is the world’s largest bond index, with assets of ~ $15 billion (2013).  Investors building at traditional 60/40 portfolio may own 10 different funds to cover their equity exposure, but often use the Barclays index as the sole component of the fixed-income portion.

 

Since 1977, the Barclays Aggregate Index has posted just two negative years (-2.9% for 1994 and -0.8% for 1999). From the beginning of 1990 through the beginning of 2013, the index’s weighting for U.S. Treasurys has dropped from 45% down to 36%; “government-related” securities has gone from 10% to 12%, corporate bonds were 15% and rose to 19% by the end of 2010 and “securitized” bonds went from 29% to a 35% index weighting.

 

It has been said that more money has been lost reaching for higher yields than investing in the stock market. The Barclays index is heavily weighted toward government securities ever since Fannie Mae and Freddie Mac were put into conservatorship in September 2008—effectively making turning their debt into government debt. Interest rate risk accounts for 98% of the total return behavior of government bonds.

 

Two other reasons to include other bond indexes for the fixed-income portion of a portfolio: [1] Even in 2008 and 2009, only a handful of investment-grade corporate bond issuers defaulted or entered bankruptcy; and [2] the Barclays index does not include TIPS. The table below shows the correlation coefficients between several Barclays bond indexes for the period April 2004 to March 2011.