The Barclays Capital US Aggregate Bond Index

Barclays Capital US Aggregate Bond Index and Mutual Fund Investing

bond investing_total bond market index
••• Getty Images

When analyzing mutual funds, you've probably noticed that the most common benchmark for bond funds is the Barclays Capital US Aggregate Bond Index. In this article, we'll tell you about this index and why it's important for mutual fund investors and how to use funds to invest in this total bond market index.

Barclays Capital US Aggregate Bond Index Definition

The Barclays Capital US Aggregate Bond Index, also known as "the BarCap Aggregate," is a broad bond index covering most U.S. traded bonds and some foreign bonds traded in the U.S. The BarCap Aggregate was once known as the Lehman Brothers Aggregate Bond Index. The index consists of approximately 17,000 bonds, hence the name "total bond index funds" for those index funds that track it.

Benefits and Fund Examples of Barclays Capital US Aggregate Bond Index

Investors can capture the performance of the overall bond market by investing in a mutual fund or Exchange Traded Fund (ETF) that seeks to replicate the performance of the index. Fund examples include the largest ETF of its kind, iShares Barclays Capital Aggregate Bond Index (AGG), and the largest bond mutual fund in the world, Vanguard Total Bond Market Index Fund (VBMFX).

An advantage of using ETFs or mutual funds that track the Barclays Capital U.S. Aggregate Bond Index is to invest in several different bond types, such as corporate bonds, municipal bonds, and US Treasuries of different maturities and duration, such as short-term, intermediate-term and long-term bonds, all in one fund.

Since the bond market can be even more complex and difficult to predict than the stock market, bond index funds make smart choices as a standalone fund as part of the fixed income of a diversified mutual fund portfolio or as a core holding with other bond funds to compliment it.

Why Use Funds That Invest In the Barclays Capital US Aggregate Bond Index

Therefore, like S&P 500 Index funds or Total Stock Market Index Funds, the index funds that track the Barclays Aggregate Bond Index serve the purpose and philosophy, "If you can't beat 'em, join 'em," which is to say that broad indices tend to beat actively managed funds over time because index funds have such low expenses and the human fallibility of active fund managers often has them losing to the broad market indices over long periods of time, especially 10 years and more.

As is the case with any other mutual fund purchasing decision, investors should be sure that a fund tracking the Barclays Capital US Aggregate Bond Index meets their investment objectives and is suitable for their tolerance for risk. Also, it is wise to be sure the fund compliments other holdings in the portfolio.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.