Vanguard Funds: VBTLX vs BND Comparison Guide

Investors looking for a low-cost total bond market index fund, the popular Vanguard funds, VBTLX and BND, are two funds that are sure to make the final cut. While both funds track the same index, VBTLX is a mutual fund and BND is an ETF.  

In our comparison guide, we provide all the key similarities and differences between VBTLX and BND, including performance and expense ratios, to determine if either of these Vanguard funds will make a good addition to your portfolio.  

Vanguard Funds: VBTLX vs BND Basics  

VBTLX and BND are both funds offered by Vanguard and they both seek to track the performance of the Bloomberg U.S. Aggregate Float Adjusted Index, which is a widely used benchmark for the performance of the U.S. investment-grade fixed income market. However, there are some subtle differences that may make one a better choice over the other for an investor. 

What Is VBTLX?  

Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) is a mutual fund offered by Vanguard, one of the largest investment management companies in the world. The fund aims to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which is a broad benchmark for the U.S. investment-grade bond market. 

As a bond fund, VBTLX aims to generate income for investors through the interest payments received from the underlying bonds. Additionally, the fund's NAV can fluctuate based on changes in interest rates, credit spreads and other market factors, potentially resulting in capital appreciation or depreciation. 

As a mutual fund, VBTLX is designed for long-term investors who are seeking broad exposure to the U.S. bond market. VBTLX is one of Vanguard’s Admiral Shares funds, which offers its lowest expense ratios and requires a minimum investment of $3,000.  

What Is BND?  

Vanguard Total Bond Market ETF (BND) is an ETF that is designed to replicate the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index by investing in a diversified portfolio of U.S. investment-grade, taxable fixed income securities. 

The fund holds a diverse range of fixed income securities, including U.S. Treasury bonds, government agency bonds, corporate bonds, mortgage-backed securities (MBS) and asset-backed securities (ABS). It provides exposure to various sectors and maturities within the U.S. bond market. 

As an ETF, the BND ETF trades on stock exchanges like individual stocks. This provides investors with the flexibility to buy or sell shares throughout the trading day at market prices. 

VBTLX vs BND: Side-by-Side Comparison  

Here are the key metrics for comparing VBTLX and BND with data as of May 31, 2023:  

VBTLX vs BND: Key Takeaways  

As you’ll see in the table above, the metrics for VBTLX and BND are almost identical. The only difference is that the expense ratio for BND is slightly lower, at 0.03%, compared to 0.05% for VBTLX. However, this difference does not give BND a clear advantage in performance, as the ETF has a razor thin edge on VBTLX for long-term returns. 

Investors should take note of a unique feature of Vanguard ETFs that sets them apart from other ETFs. Most of Vanguard's ETFs were established as separate share classes of the company's mutual funds. In other words, in this case, holding BND is no different than holding VBTLX, with the exception of one key difference: Investors can buy BND during the day like a stock, whereas investors aren't able to buy or sell VBTLX intraday on an exchange. 

VBTLX vs BND: Performance  

Performance for BND and VBTLX is nearly identical when comparing returns by net asset value (NAV). VBTLX has a slight edge in the one-year performance, whereas BND is just 1 basis point ahead of VBTLX for the five-year and 10-year returns. 

One caveat to note, however, is that the performance for BND could differ, depending on the market price where an investor enters a position.  

For example, an ETF’s market price is the price at which investors can buy or sell an ETF on an exchange. NAV represents the value of a share’s portion of the fund’s underlying assets at the end of the trading day. If an investor bought shares of BND during a given trading day, and the share price closed higher that day, the ETF investor would already have a gain.  

However, if an investor bought shares of VBTLX on the same day, they would buy at the fund’s NAV, which reflects the price of the fund’s underlying holdings after the market’s close. Prices can also work in the opposite direction and favor the mutual fund over the ETF on any given day. 

VBTLX vs BND: The Differences  

VBTLX and BND are both Vanguard funds that provide exposure to the U.S. investment-grade bond market. However, they have some notable differences including their structure, trading flexibility, minimum investment and expenses.  

The main differences between VBTLX and BND are: 

• Structure and trading flexibility: VBTLX is a mutual fund, which means investors buy shares directly from the fund at NAV at the end of the trading day. The mutual fund structure allows for fractional share purchases and redemptions. BND is an ETF, which means it trades on stock exchanges like individual stocks, and investors buy and sell shares at market prices throughout the trading day.  
• Minimum investment: VBTLX has a minimum initial investment requirement of $3,000. BND can be purchased with no minimum investment requirement since ETFs trade on stock exchanges. Investors can buy even a single share of the ETF. 
• Expense ratio: VBTLX has an expense ratio of 0.05%, which is slightly higher than BND’s expense ratio of 0.03%. 

VBTLX vs BND: The Similarities  

The main similarities between VBTLX and BND are that they are both Vanguard funds and they both seek to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index.  

The key similarities between VBTLX and BND are:  

• Investment objective: Both VBTLX and BND seek to track the performance of the same underlying index, the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. They aim to replicate the index's returns by investing in a diversified portfolio of U.S. investment-grade, taxable fixed income securities. 
• Broad market coverage: Both funds hold a similar range of fixed-income securities, including U.S. Treasury bonds, government agency bonds, corporate bonds, MBS and ABS. They provide exposure to various sectors and maturities within the U.S. bond market. 
• Income generation: VBTLX and BND both aim to generate income for investors through the interest payments received from the underlying bonds. They distribute interest income to investors on a regular basis, which can be reinvested or taken as cash. 
• Low-cost structure: Both VBTLX and BND are known for their low expense ratios compared to many actively managed funds. Vanguard is renowned for its commitment to offering cost-effective investment options, which can be advantageous for long-term investors. 

BND vs VBTLX: Who Should Invest  

Ultimately, both BND and VBTLX can be good investment options for long-term investors seeking broad exposure to the U.S. bond market. Investors who prefer to trade during the day to take advantage of price fluctuations may prefer an ETF like BND, whereas a more passive buy-and-hold investor may prefer a mutual fund like VBTLX.  

Bottom Line  

The BND versus VBTLX comparison is essentially a comparison of ETFs versus index funds. BND is an ETF, which means it trades intraday on an exchange, just like a stock, whereas VBTLX is a mutual fund that trades once per day after the market closes. Beyond this structural difference, these two Vanguard funds are similar in that they track the same index and have nearly identical performance when measured by NAV.