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ETF Specialist

Is the Aggregate Index Too Heavy in Treasuries?

Record Treasury issuances during the past decade have made the index more conservative than most intermediate-term bond funds.

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In many markets, index investing is appealing because it takes a free ride on the collective efforts of active investors, offering comparable exposure at a fraction of the cost. As long as the index is representative of what active managers in the fund world are doing, it's a good bet that a low-cost index fund will beat the average manager in the category.

However, the Barclays U.S. Aggregate Bond Index has increasingly diverged from actively managed funds in the intermediate-term bond Morningstar Category during the past five years. At the beginning of 2000, funds that tracked the Aggregate Index held bonds that were similar to the category average in duration, credit quality, and performance. But that has changed during the past several years.

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Thomas Boccellari does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.