Today the Agg is approximately one-third Treasuries, one-third mortgage-backed securities, and one-third investment-grade corporate credit —two-thirds of the index is directly impacted by U.S. monetary policy.

By excluding municipal bonds, many foreign bonds and much of the high yield universe, the Agg no longer represnets the fixed income universe, says David Mazza, head of ETF and mutual fund research at Boston-based State Street Global Advisors.

“The Agg only provides investment-grade exposure, which today offers the lowest yield per unit of interest rate risk in any period of history going back 35 years,” Mazza says. “Risk has gone up, while return has gone down. Your break-even for owning the Agg this year is the worst in history.”

In addition, the fixed income universe includes asset-backed and non-agency mortgage backed securities and leveraged loans that aren’t represented in the Agg.

Managers already struggle with the size of the Agg — with more than 9,000 securities, trying to track the Agg precisely would involve some products with limited liquidity and availability. In lieu of trying to capture the entire index,, managers approximate its performance using a portion of its holdings.

Thus, investors really buy managers’ best efforts to track the index — but Ira Jersey, fixed income strategist and portfolio manager at New York-based Oppenheimer Funds, questioned whether the Agg should be tracked at all due to its market cap weighting.

“There’s a dynamic that occurs in bond indicies,” Jersey says. “Whereas companies, countries and issuers who issue more debt and become less credit worth receive a bigger share of the index. That’s a serious flaw in market-cap weighted bond indices.”

When its market cap weighting combines with low interest rates, the Agg is susceptible to concentration companies and sectors rapidly taking on more debt, says Jersey. “An indexed investor ends up owning more risk in the part of their portfolio that they think is safe.”

Anne Walsh, assistant CIO for fixed income at New York-based Guggenhiem Partners, says the Agg’s market-cap weighting exposed investors to bubbles in almost every decade of its existence.

“If you look back at history, the Agg predecessors launched 1970s, when the biggest borrowers were utilities — so of course they were overweight utilites,” Walsh said. “Then in the 1970s and 1980s, we had a number of defaults in utilities. Oops.”