A Deep Look At The Vanguard Total Bond Market ETF (BND)

bonds market

From Proj Omni: Vanguard Total Bond Market ETF (ETF:BND) offers investors  broad exposure to US investment grade bonds.  In this review, we’ll cover 21 points investors should be cognizant of before investing in BND.

We’ll take a look at the fund performance (share–not stock–price, returns, dividends, yield, holdings, expense ratio, tax efficiency and beta), and the alternatives (BND vs. VCIT, BND vs. VBMFX, BND vs. VBTLX, BND vs. BIV, BND vs. BNDX, BND vs. BOND, BND vs. SCHZ) available to individual investors.

1. What is Vanguard BND ETF?

Vanguard BND is an ETF that tracks Bloomberg Barclays US Aggregate Float Adjusted Index.

It provides broad exposure to US investment grade bonds.  Its goal is to keep pace with US bond market returns.

2. Whom is BND appropriate for?

BND share value tends to rise and fall modestly.

BND is more appropriate for medium- or long-term investors where you’re looking for a reliable income stream.

It’s also used for diversifying the risks of stocks in a portfolio.

3. How do you rate / rank BND?  

We don’t assign star ratings, such as Morningstar, but rather guide individual investors to make a decision based on their investment goals, experience and knowledge of the market.

If you’re a novice in investing, and you’re looking for a broad exposure to US bonds, you should give this fund a shot.  We give it a Green/Green/Yellow.

Reasons for the Green/Green/Yellow? 

The first mark is for portfolio diversity; the second for expenses; and the third one is for historical risk-adjusted performance.

The best-rated funds along these three dimensions are Triple Green.  The worst ones are Triple Red.

BND: 1. Offers diversified exposure to US investment grade bonds, government and corporate; 2. Has a very low expense ratio, 0.05%; 3. Has historically done OK, but performed significantly below stocks (both US and international).  A low fee and a highly diversified portfolio make the fund well-positioned to do well in the future.

4. What is the Bloomberg Barclays US Aggregate Float Adjusted Index?  What should I know about it?

The Index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities.

All securities represented in the fund are with maturities of at least one year.

5. What are the BND holdings? What’s the composition of BND?  

The following list shows the top holdings in BND and weights of their assets:


% Assets

US Treasury Note 2.125%


US Treasury Note 3.625%


US Treasury Note 2.625%


US Treasury Note 1.75%


US Treasury Note 2.25%


US Treasury Note 1%


US Treasury Note 1.25%


US Treasury Note 2.5%


US Treasury Note 1.625%


Those top 9 notes account for 3.9% of the fund’s performance.

6. What is the distribution of bond ratings for BND?

The distribution of the bond ratings is as follows:


Share (%)

AAA (highest possible)









Note that there are virtually no bonds in the index that are rated BB, B, or below B.

7. How did BND perform / how much did BND return over the last 3-5 years?

BND shares (not stock) returned 2.46% per annum over the last 3 years, and 2.12% over the last 5 years.  Below is the BND historical price chart.

8. What is BND expense ratio?

The expense ratio for BND is 0.05%, which is fairly low.

9. What is BND tax efficiency?  What is BND tax-cost ratio?

The one-year tax-cost ratio (return reduction because of taxes investors pay on distributions) for BND is1.06%.  That means that because of dividend taxes, returns are effectively reduced by a little over one percent.

The tax efficiency of BND is relatively low; BND performs worse than the average mutual fund.   

10. What is BND beta?  What is BND risk profile?

The five-year beta (volatility) for BND is 1.05, measured against S&P 500.  This means BND is slightly more volatile than S&P 500.

You should expect higher performance of more volatile funds, because they are riskier.

The R-Squared for BND is 99.4%, which means that BND is highly correlated to S&P 500.

11. How much does BND pay in dividends?  What is the BND yield?

BND pays a monthly dividend.  Here is the payout for the last 12 months:

Ex-Dividend Date / Effective Date Amount ($)
Jul 3, 2017 .17
Jun 1, 2017 .172
May 1, 2017 .168
Apr 3, 2017 .174
Mar 1, 2017 .158
Feb 1, 2017 .168
Dec 22, 2016 .17
Dec 1, 2016 .16
Nov 1, 2016 .162
Oct 3, 2016 .161
Sep 1, 2016 .166
Aug 1, 2016 .165

The SEC-reported dividend yield is 2.39%.

12. I’m interested in fixed income / bond ETFs.  Which bond ETFs would you recommend?
There are over 200 bond ETFs, focused on different segments of the US and international markets. Among those ETFs, here are some that attracted most assets over time:

  • BND Vanguard Total Bond Market ETF.  Its expense ratio is 0.05%. It covers bonds that are offered for sale in the US.
  • AGG iShares Core US Aggregate Bond ETF.  Its net expense ratio is 0.06%.  It represents bonds that are sold in the US.
  • BNDX Vanguard Total International Bond ETF.  Its expense ratio is 0.11%.  It provides a convenient way to get broad exposure to non-US dollar denominated investment-grade bonds.
  • BSV Vanguard Short-Term Bond ETF.  Its expense ratio is 0.07%.  It covers  US investment-grade bonds with a dollar-weighted average maturity of 1 to 5 years.

13. Compare and contrast: BND vs. VCIT.  Should I choose BND or VCIT?

VCIT Vanguard Intermediate-Term Corporate Bond ETF gives you exposure to investment-grade corporate bonds.  VCIT tracks the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index.

VCIT covers over 1,700 bonds vs. BND which covers over 8,200.  VCIT has about $17 Billion in assets, which is much smaller than BND.

Most of VCIT bonds are rated BBB or A.  It has literally 0 bonds which are rated BB or below. BND also has virtually no bonds rated BB or below.

VCIT expense ratio is 0.05%, the same as BND expense ratio.

Performance wise, VCIT fared better than BND.  In the last 5 years, VCIT returned 4.21% vs. BND 2.12%.

But VCIT is also more tax inefficient.  VCIT tax-cost ratio is 1.39% vs. BND 1.06%.

And VCIT is also more volatile than BND: its Beta is 1.4 over the last 5 years (40% more volatile than S&P 500!).

The choice is really up to you–BND gives you a broader exposure to US bonds, while VCIT focuses on corporate bonds.  Both products include high-grade securities.  VCIT has higher historical returns, but it’s also more volatile, and less tax efficient.

14. Compare and contrast: BND vs. VBMFX.  Should I choose BND or VBMFX?

VBMFX is a mutual fund equivalent of BND. The fund is designed to provide broad exposure to US investment grade bonds.
The minimum investment for VBMFX is $3,000.  BND does not have a minimum investment requirement.
VBMFX has a higher expense ratio than BND: 0.15%.

Both BND and VBMFX have a Beta slightly above 1, which means they are more volatile than S&P 500.

Performance wise, BND and VBMFX are similar (BND fairs slightly better because of the lower expense ratio).  In the last 5 years, VBMFX returned 2.03% vs. BND 2.12%.

One of the misconceptions is that mutual funds for bonds have higher returns than equivalent ETFs, because ETFs trade on market price (as opposed to underlying net assets).  

While the latter part of the statement is correct, it’s worth pointing out that:
A. BND is highly liquid and the differences between the market price and net asset value tend to be relatively small;
B. The bid/ask spread for high-liquidity assets tends to be relatively small.  BND is highly liquid; 
C. The returns reported above for BND are calculated using market values (for buying and selling this security).
VBMFX offers you an opportunity to pursue automatic investments and dividend reinvestments, so you can acquire shares in desirable proportions.

In fact, you can even choose an option to automatically deduct from your bank account and invest into VBMFX every month.

BND, on the other hand, trades similarly to stocks. You may have to pay a commission for buying or selling BND.

BND automatic dividend reinvestments are possible if you trade on Vanguard.

Our recommendation–invest in BND (vs. VBMFX) using a low-cost/no-cost brokerage (such as Robinhood or Vanguard for Vanguard funds).     

15. Compare and contrast: BND vs. VBTLX?  Should I choose BND or VBTLX?

VBTLX is an Admiral Shares version of the mutual fund equivalent to BND. The fund is designed to provide broad exposure to US investment grade bonds.

The Admiral shares VBTLX has the minimum investment requirement of $10,000.  BND does not have a minimum investment requirement.
VBTLX and BND have the sameexpense ratio than BND: 0.05%.

Both BND and VBTLX have a Beta slightly above 1, which means they are more volatile than S&P 500.  Also, they are equally tax-effective.
Performance wise, BND and VBTLX are very similar.  In the last 5 years, VBTLX returned 2.14% vs. BND 2.12%.

The difference in returns, although small, likely occurs because BND as an ETF trades at the market price, which may differ from the underlying Net Asset Value (NAT).  Furthermore, there is likely to be a difference between the bid and ask price when you purchase ETFs, so that further diminishes investors’ return.    

Since BND is an ETF, you may have to pay a trading commission if you invest outside of Vanguard or zero-dollar brokerages (e.g., Robinhood).  Same is true for VBTLX–brokerages outside Vanguard may charge you a hefty transaction fee.

In summary, with BND as an ETF:

  • You can own amounts below $10K and get the same expense ratio as with VBTLX;
  • You can buy at any brokerage at any time the markets are open at the current asking price;
  • BUT you are buying or selling at the market price, which is different from the underlying asset price (it could differ either way, up or down), and you’re subject to the bid/ask spread.

With mutual funds such as VBTLX: 

  • You buy at Net Asset Value (NAV) at the close of day with no bid/ask spread;
  • You can easily reinvest dividends and capital gains;
  • BUT you need to invest minimum $10K.

The choice is up to you. It depends on the brokerage you use, your dividend re-investment goals, and the amount you’re planning to invest.    

16. Compare and contrast: BND vs. BIV.  Should I choose BND or BIC?

BIV tracks Bloomberg Barclays US 5-10 Year Government/Credit Float Adjusted Index. It includes US government, investment-grade corporate and international dollar-denominated bonds that have maturities between 5 and 10 years and are publicly issued.

The average effective maturity of BIV bonds is shorter than that of BND bonds (7.3 vs. 8.3years).  The average effective maturity is a period of time until the underlying fixed income securities held by an ETF reach maturity and are repaid.

Both bonds have similar sensitivity to interest rates.

Both ETFs have a large share of quality bonds (bonds with high credit quality).

BND contains mortgage-backed securities; BIV does not.  

BIV is more expensive than BIC (0.07% expense ratio vs. 0.05%).

Performance wise, BIV has done better.  It returned 2.69% over the last 5 years vs. BND’s 2.12%.

BND is a safe, vanilla choice for someone seeking exposure to US bonds. BIV may be better for someone seeking to prevent exposure to mortgage-backed securities.

17. Compare and contrast: BND vs. BNDX?  Should I choose BND or BNDX?

BNDX tracks the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged).  It’s a benchmark index that measures the investment return of non-US dollar-denominated investment-grade bonds.

BND, on the other hand, is focused on US bonds.

The proponents of international bonds think that it might make sense for US investors to get their core bond exposure outside of the US. That’s because borrowing rates internationally are likely to remain low long after the Fed starts tightening borrowing rates.

Both ETFs have a large share of quality bonds (with high credit quality).

BNDX is more expensive than BND (0.12% expense ratio vs. 0.05%).

Performance wise, BNDX has done better.  It returned 3.95% over the last 3 years vs. BND’s 2.46%.  (BNDX is a relatively new ETF so the returns for longer timeframes are not available).

BNDX is also more tax efficient than BND.  BNDX tax-cost ratio is 0.80% vs. 1.06% for BND.  That means on average you’re earning 0.26% with BNDX because of tax-related implications.

BNDX is attractive to investors with conviction that the lack of inflation in Europe and Japan makes owning international bonds quite safe.
If you’re looking for higher returns than BND, BNDX may be the right choice.       

18. Compare and contrast: BND vs. BOND?  Should I choose BND or BOND?

BOND is an actively managed ETF by PIMCO.  It has a diversified portfolio of high quality bonds.  BOND invests primarily in investment grade debt securities.

But it may invest up to 30% of its total assets in junk bonds rated B or higher by Moody’s Investors Service.
BOND is more expensive than BIC (0.55% expense ratio vs. 0.05%).

Performance wise, BOND has done better than BND.  It returned 3.65% over the last 5 years vs. BND’s 2.12%.

BOND is also relatively tax-inefficient; its tax cost ratio 1.23% vs. 1.06% for BND.  That means on average, your earnings will be reduced by 1.23% post tax if you invest in BOND.

The thing to understand about BOND is, it has a much higher allocation on lower investment grade bonds than BND.  Hence the higher return.

Our recommendation is, if you’re seeking to get exposure to US bonds, stick with BND.  BND is higher quality, though returns are smaller as well.

19. BND vs. SCHZ?  Should I choose BND or SCHZ?

SCHZ is a convenient, low-cost way to capture US taxable investment-grade bonds.  The fund tracks the total return of the Bloomberg Barclays US Aggregate Bond Index.

So it has the same objective as BND.

Performance wise, SCHZ returned 2.11% over the last 5 years vs. BND’s 2.12%.

The difference between SCHZ is likely because of the bid/ask spread which may be higher for SCHZ than BND (BND is significantly more liquid, because it has more assets under management).  

SCHZ is cheaper than BND: its expense ratio is 0.04% vs. 0.05% for BND.

Tax-efficiency for SCHZ and BND is the same.

BND and SCHF are both great broad-brush US-focused bond ETFs.  You can’t go wrong with either one.     

20. What is BND turnover?  And does the turnover really matter?  

BND annual turnover is 61%, which is above average for ETFs.

Higher turnover equates to higher costs and larger taxable capital gains.

21. How can I find out the funds that have done better than BND?     
You can get some suggestions on what ETFs have outperformed BND through Finstead’s Idea tool.  The tool pops out a couple of ETF suggestions (from both the same fund category and overall) that have historically had a higher expense adjusted return and lower volatility (i.e., risk).

For BND, the Finstead idea tool suggests Columbia Core Bond ETF (GMTB) as the same category ETF that has had a higher return and lower volatility over the last 5 years than BND.

When you see an idea like this, do your due diligence.

Based on prospectus, GBTM seeks higher risk-adjusted returns relative to the benchmark. The fund invests primarily in investment-grade securities, including government, municipal, mortgage-backed securities and corporate and bank obligations.

So for those of you who are not fans of mortgage-backed securities, this may not be the right choice.

However, GMTB has higher risk adjusted return than BND.

The Vanguard Total Bond Market ETF (NYSE:BND) closed at $82.21 on Friday, down $-0.31 (-0.38%). Year-to-date, BND has gained 3.24%, versus a 11.90% rise in the benchmark S&P 500 index during the same period.

BND currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #2 of 31 ETFs in the Intermediate-Term Bond ETFs category.

This article is brought to you courtesy of Finstead.