Bond-Focused Fund with Enormous Holdings in U.S. Treasuries

The exchange-traded fund (ETF) Vanguard Total Bond Market ETF (BND) is one of the biggest in the bond sector.

BND invests 98% of its $33.71 billion total assets in U.S. investment-grade bonds, with a goal to keep pace with U.S. bond market returns. The fund manages a massive portfolio, which consists of 17,426 different types of bonds to give BND the broadest exposure to U.S. bonds.

All of the bonds in BND’s portfolio have maturities of at least one year, and no single bond type takes up more than 1% of BND’s overall portfolio. Of course, managing such a broad portfolio is difficult, and that may have contributed to volatility in the fund that is higher than its peers.

With a yield of 2.44% and an expense ratio of only 0.06%, which is lower than 92% of funds with similar bond holdings, Vanguard recommends BND as a source of reliable income for the long term. It also serves as a good way to diversify the risks of stocks in investors’ portfolios.

Like most other bond-focused funds, BND was hurt by the “Trump Rally” that started near the end of 2016. But as of now, it has managed to recover much of its losses. Year to date, BND’s return is 1.84%, compared with the S&P 500’s 5.28%.

In addition, 44.42% of BND’s portfolio is in U.S. government Treasuries, while the rest are in corporate and securitized bonds rated BAA and above. Even though BND holds funds of all maturity lengths one-year and higher, it is heavily weighted towards the short end of the curve.

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BND’s top five holdings and their weightings in the portfolio are the U.S. Treasury Note 2.125%, 0.53%; U.S. Treasury Note 3.625%, 0.52%; U.S. Treasury Note 2.625%, 0.49%; U.S. Treasury Note 1%, 0.47%; and U.S. Treasury Note 1.75%, 0.45%. BND owns roughly 900 million shares, on average, in each of its top five holdings.

If you are seeking broad exposure to U.S. treasuries bonds, I encourage that you to look into Vanguard Total Bond Market ETF (BND) as a potential investment.

As always, we are happy to answer any of your questions about ETFs, so do not hesitate to send us an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.