How Does BND's Broad Bond Exposure Compare to VGIT's Lower Risk?

Both the Vanguard Intermediate-Term Treasury ETF (NASDAQ:VGIT) and Vanguard Total Bond Market ETF (NASDAQ:BND) are popular bond ETFs from Vanguard that aim to provide steady income, but their approaches differ when it comes to the grade of bonds. This comparison examines their costs, yields, performance, risk, and portfolio makeup to help investors decide which might fit their needs.

Snapshot (cost & size)

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

Both funds are equally affordable with a 0.03% expense ratio. However, BND’s yield edges out VGIT’s, while VGIT currently has a slightly higher one-year return.

Performance & risk comparison

What's inside

For nearly 20 years, BND has tracked the broad U.S. investment-grade bond market, holding a large basket of 15,000 securities. It is designed for investors seeking balanced exposure across Treasuries, mortgage-backed securities, and investment-grade corporates.

By contrast, VGIT invests primarily in intermediate-term U.S. Treasury securities, with 104 holdings and a strong government bond presence. All of its bond holdings are AAA-rated, the highest rating a U.S. bond can receive.

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What this means for investors

With similar performance throughout the years, deciding between these two would come down to how much bond exposure and risk investors d.

Even though roughly 72% of BND’s holdings are AAA bonds, it holds at least 12% of both A and BBB bonds, and only half of the bonds are backed by the U.S. government. So there will be slightly more risk, because as bond ratings decline, the issuer’s default risk increases. However, yield and return are expected to be higher with lower-rated bonds because of the risk that comes with them.

When it comes to the bond market overall, expect lower dividend yields and returns compared to the stock market and ETFs that hold stocks, as bonds aren’t as volatile.

Bonds are often more directly tied to the U.S. economy, as many of them are issued by the local and federal government, so if the U.S. economy isn’t performing well, there’s a considerable chance bonds won’t perform as well either, especially if the government raises interest rates.

Adé Hennis 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.