The largest bond exchange-traded fund has cruised past a new milestone: $100 billion in assets.
The Vanguard Total Bond Market ETF
is the first to cross the line, with the $96 billion
iShares Core U.S. Aggregate Bond ETF
not far behind. The inflows are a testament to the enduring popularity of low-cost ETFs and investors’ appetite for bonds.
“ETFs are a vehicle of choice for many investors,” Sara Devereux, global head of fixed income at Vanguard, the world’s second-largest asset manager, told Barron’s. “We’ve seen the ETF space overall grow, and then within ETFs, we’ve seen the fixed income space grow.”
Vanguard has about $400 billion in fixed-income ETFs, she added.
The Vanguard Total Bond Market ETF and rival iShares Core U.S. Aggregate Bond ETF track a variation of the Bloomberg U.S. Aggregate Bond Index, or “Agg.” Both have beaten about 60% of their Morningstar Intermediate Core Bond fund category peers in the past 10 years.
Vanguard Total Bond Market has delivered total returns this year of 2%, while the Bloomberg U.S. Aggregate Bond Index is up 1.64%.
“Many investors know there’s diversification benefits to having some exposure to fixed income in conjunction with equity exposure,” said Todd Rosenbluth, head of research at VettaFi, a financial research and data company. “Bonds in general, and Vanguard’s Total Bond Market ETF in particular, provide some income and downside protection against stock market volatility.”
He said many investors are pairing Vanguard’s Total Bond Market ETF with either the
Vanguard S&P 500 ETF
or the
Vanguard Total Stock Market ETF.
“It’s natural that they want a low-cost, diversified product and Vanguard continues to provide that for many,” he added.
Rosenbluth said it’s likely that bond strategies will perform better in 2024 than they have done this year.
“There’s expectations that the Federal Reserve will cut interest rates, but even if they are high for longer, it’s unlikely that the Fed continues to raise interest rates in 2024, which means, if nothing else, investors are going to get the income from bonds and the added benefit is that they might get price appreciation from them as well,” Rosenbluth said.
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