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Total Bond Market ETF (BND) Tops $100B in AUM

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The Vanguard Total Bond Market ETF (BND - Free Report) , a prominent bond exchange-traded fund, has reached a milestone by surpassing $100 billion in assets. This is the first time a bond ETF has broken this threshold since the inception of such products over two decades ago. The fund has seen substantial growth in 2023, pulling in $15.9 billion in capital.

Behind the Success

The milestone came on the back of two emerging trends of 2023. Firstly, the highest yields seen in recent years have made fixed-income investments more attractive. The treasury yields soared to decade highs in late October on concerns that the Fed would keep interest rates at the current high levels for longer. However, a growing conviction that the central bank has reached the end of its tightening cycle has ignited a fierce bond rally over the past month, pushing the yields down (read: 5 Low-Risk ETFs to Buy Amid Historic Bond Turmoil).

Secondly, the preference for cost-effective and tax-efficient ETFs, which have been steadily encroaching on the market share traditionally held by their higher-cost mutual fund counterparts, has increased. A major contributor to growth of BND has been the shift of capital from fixed-income mutual funds, which have experienced a significant outflow of funds. Since March 2022, fixed-income mutual funds have reportedly lost about $500 billion, a portion of which is likely to have flowed into ETFs like BND.

BND stands out for its broad exposure and diversity in the bond market. The fund tracks a wide array of securities, ranging from Treasuries to corporate credit and securitized assets. The success of BND also reflects Vanguard's strong standing in the ETF market. Known for the low-cost, high-value offerings, Vanguard has increasingly tightened its grip on the ETF industry. This market share growth has been consistent over the past two decades, narrowing the gap between it and BlackRock, which has been a dominant player in the ETF space.

BND in Focus

Vanguard Total Bond Market ETF targets the broad U.S. investment grade bond market by tracking the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. The product holds 10,707 bonds in its basket, with an average maturity and effective duration of 8.60 years and 6.10 years, respectively (see: all the Total Bond Market ETFs here).

Vanguard Total Bond Market ETF is the largest and most-traded bond ETF, with an average daily volume of 7.2 million shares. It charges 3 bps in annual fees. Despite the challenging market conditions, BND has gained 3.4% so far this year and has not experienced a monthly outflow since May 2022.

While BND was the first to break the $100-billion mark, it is closely followed by BlackRock's iShares Core U.S. Aggregate Bond ETF (AGG - Free Report) , which offers a broad range of debt securities and charges a similar low annual fee.

Bottom Line

The achievement of Vanguard's BND ETF highlights a significant shift in investor preference toward bond ETFs, particularly in a volatile and high-yield environment. Its diverse coverage, low cost and a steady influx of capital, even in challenging market conditions, underscore the growing importance and appeal of bond ETFs in the current financial landscape.

Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.

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