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In a historic move, a bond exchange-traded fund (ETF) has surpassed the $100 billion mark, marking a significant milestone since the inception of such products over two decades ago. Vanguard Total Bond Market ETF (ticker BND) achieved this feat with a $14 million inflow on Wednesday, bringing its total assets to over $100 billion. Year-to-date, BND has witnessed inflows totaling $15.6 billion.
This achievement reflects the convergence of two major trends in 2023. The allure of fixed-income has increased due to the highest yields seen in years. Simultaneously, low-cost, tax-efficient ETFs, such as BND, have consistently gained market share at the expense of their more expensive mutual fund counterparts.
Todd Sohn, ETF and technical strategist at Strategas Securities, suggests that a significant portion of the inflows into BND may be originating from mutual funds, which have faced a decline of $500 billion since the interest-rate liftoff in March 2022.
BND’s accomplishment comes against the backdrop of a turbulent year for fixed-income markets, marked by persistent inflation and the Federal Reserve’s efforts to curb it, resulting in heightened volatility. Despite these challenges, BND, with an annual expense ratio of 0.03%, has been steadily attracting funds throughout 2023.
Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, notes that BND’s success is not surprising given its offering of a diverse range of 18,000 bonds for a minimal fee of three basis points. The ETF has proven to be a reliable choice for investors in various market conditions.
Bond ETFs, in general, have experienced significant inflows this year as investors reassess expectations regarding the Federal Reserve’s actions and economic conditions. Among them, the iShares 20+ Year Treasury Bond ETF (TLT) has seen substantial gains, attracting nearly $23 billion in 2023.
While BND secured its position as the first bond ETF to breach the $100 billion mark, BlackRock Inc.’s counterpart, The iShares Core U.S. Aggregate Bond ETF (AGG), is closely trailing with approximately $96 billion in assets. Vanguard’s reputation for maintaining steady allocations, even in turbulent market environments, is credited for BND’s success.
