Better Vanguard Bond ETF: BND vs. VGIT

The Vanguard Total Bond Market ETF (NASDAQ:BND) and Vanguard Intermediate-Term Treasury ETF (NASDAQ:VGIT) look similar on fees, but BND is far bigger, covers more of the bond market, and has delivered a modest edge in recent returns and yield, while VGIT sticks strictly to U.S. Treasuries and has seen less volatility.

Both BND and VGIT are popular bond ETFs from Vanguard, each aiming to provide income and diversification for portfolios. BND casts a wider net across the investment-grade U.S. bond market, while VGIT focuses solely on intermediate-term U.S. Treasuries. This comparison unpacks their differences in cost, performance, risk, and portfolio makeup to help investors decide which approach may better suit their needs.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months.

Both funds are equally affordable with identical 0.03% expense ratios, but BND has a slight edge in yield, offering a 3.9% payout versus VGIT’s 3.8%.

Performance & risk comparison

What's inside

The Vanguard Total Bond Market ETF provides exposure to the full U.S. investment-grade bond universe, holding 346 different securities as of its 19th year. Its largest positions include U.S. Dollar cash and a mix of U.S. Treasury notes, but the fund also invests in mortgage-backed and corporate bonds, providing diversified credit and interest rate risk. The fund’s cash & others sector exposure reflects its broad, market-weighted approach, and its top holdings are relatively small compared to its overall size.

In contrast, VGIT is anchored exclusively in U.S. Treasury bonds, with 76 holdings focused on intermediate maturities. Its top holdings are recent Treasury note issues, and the fund’s cash & others sector exposure simply reflects its government-only portfolio. VGIT does not include corporate or mortgage-backed debt, so its credit risk is minimal compared to BND’s broader exposure.

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What this means for investors

Although the Vanguard Total Bond Market ETF (BND) and Vanguard Intermediate-Term Treasury ETF (VGIT) are both low-cost bond funds, each fulfills different investor goals.

Because VGIT concentrates only on U.S. Treasury bonds, it offers ultra-low risk and stability to a portfolio, as demonstrated by its lower max drawdown compared to BND. It is a particularly attractive choice if you believe the stock market will experience a downturn, acting as a defensive play. That’s because U.S. Treasury bonds tend to rise or hold their value during stock market volatility.

BND is for investors who have a “set it and forget it” mindset. It can act as a core bond fund to hold over the long term. Its far larger $387.46 billion assets under management and broader holdings make it highly diversified, which helps it deliver a higher yield than VGIT. This is evidenced in its greater one-year return. It’s a solid choice to add all-around bond exposure to your portfolio.

Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.