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Vanguard Bond ETF (BND) - Thesis

Vanguard Bond ETF (BND)
Rating: BUY
Objective: Steady Returns, Low Volatility, Diversification


The Vanguard Total Bond Market ETF (ticker symbol: BND) is a great way to add low risk diversification to a long-term investment portfolio while simultaneously earning relatively attractive low-risk interest payments (currently 2.06%). This ETF holds over 8,000 bonds (so you get plenty of diversification) and they’re all high quality (investment grade). The ETF is managed by Vanguard (a very trusted name in the industry), so it charges an extremely low management fee, only 0.06%. For perspective a typical bond fund charges 0.82% (according to Vanguard) and this difference really adds up over time. This ETF is appropriate for medium- to long-term investors, and we really like it because it is a fantastic complement to the stock ETFs within our Blue Harbinger Smart Beta strategy.

Traditionally, as a base case, many long-term investment portfolio start with a mix of 60% stocks (equities) and 40% bonds (fixed income). And then they increase the allocation to stocks if they can handle more volatility in exchange for higher long-term expected returns. Or they increase the allocation to bonds if they want less risk (albeit with lower long-term expected returns). We have allocated 20% of our Blue Harbinger Smart Beta strategy to bonds (via this Vanguard Bond ETF), which may be considered slightly higher risk compared to a more traditional 60% stocks / 40% bonds portfolio. However, with the long-term investment horizon of the Smart Beta strategy, we’re comfortable with the risk and higher long-term expected returns. 

This is an ETF (BND) that can be held for a very long time (as long as nothing goes wrong with Vanguard, the company that manages it). We trust Vanguard, we love the low fees, and we believe this is a great way to gain broadly diversified expose to the high-quality bond market.

 

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