Vanguard has claimed the title of the provider of the world’s largest bond ETF after assets in the Vanguard Total Bond Market ETF (BND US) overtook BlackRock’s iShares Core US Aggregate Bond ETF (AGG US) last week.

Vanguard has claimed the title of the provider of the world’s largest bond ETF.

As of 15 August 2022, BND housed $84.5 billion in assets under management compared to AGG which contained $83.8bn.

While AGG has dominated the fixed income landscape for years, its AUM has slipped from $91.5bn at the beginning of the year.

Fixed income assets have struggled in 2022 as rapidly rising interest rates have weighed on performance. AGG had fallen as much as 12.6% this year, as of 14 June, but fixed income markets have since recovered somewhat and the fund is currently down 8.8% year-to-date.

Both AGG and BND track very similar indices providing broad exposure to investment-grade US dollar-denominated debt from multiple fixed income indices. Historically, the ETFs’ two indices have been very closely correlated as shown below.

BND’s ability to take the crown of the world’s largest bond ETF, therefore, may be solely attributed to it generating stronger net inflows than AGG.

In the first six months of the year, AGG had three months of inflows and three months of outflows with the fund attracting just $359 million in net new assets. In contrast, BND recorded five months of inflows and pulled in over $6.2bn during the same period.

As fixed income markets have begun to recover in recent months, AGG has experienced stronger inflows of $1.6bn between the beginning of July and 15 August; however, BND netted more than $2.7bn.

While Vanguard likely has a stronger reputation as a low-cost ETF provider, price has not played a significant role as, following multiple fee cuts in recent years, both AGG and BND currently have expense ratios of 0.04%.

The answer to BND’s recent success may be found in the different types of investors that typically invest with Vanguard and BlackRock.

Specifically, those attracted to Vanguard’s ETFs are more likely to be long-term buy-and-hold investors that are less swayed to exit their positions during market turbulence. Indeed, the recent pull-back in fixed income markets may have presented an opportunity for some of these investors in more expensive mutual funds to switch to lower-cost ETFs while avoiding significant tax bills.

In contrast, AGG’s investors are typically more institutional in nature and often take a shorter, more tactical approach to portfolio management, explaining why the ETF has seen outflows as investors adjust their positions.

If conditions in fixed income markets continue to improve, however, these trends may reverse and AGG may reclaim its crown.