Key Morningstar Metrics for Vanguard Total Bond Market Index Fund
- Morningstar Medalist Rating: Gold
- Process Pillar: Above Average
- People Pillar: Above Average
- Parent Pillar: High
A razor-thin fee preserves the performance advantage for Vanguard Total Bond Market Index’s expansive portfolio of US investment-grade bonds.
The fund tracks the Bloomberg US Aggregate Float Adjusted Index, which captures investment-grade, fixed-rate, taxable bonds denominated in US dollars. The index has different minimum size requirements for each type of bond, which helps the index remain investable given the large asset base following it. While it captures a broad swath of the bond market, the index excludes riskier types of bonds such as eurodollar bonds, non-ERISA-eligible CMBS, and bonds with equity features. It weights selected holdings by market value, after reducing the amount outstanding for bonds held by the Federal Reserve to adjust for float.
This weighting scheme tilts the fund toward the largest issuers, resulting in an overweight position in US Treasuries relative to Morningstar Category peers. The fund tends to park around 40%-50% of its assets in these instruments versus 30% for the category average. A heavy dose of Treasuries translates into a relatively high-quality portfolio. Over 70% of the portfolio carries a credit rating of AAA or AA, around 10 percentage points higher than the category average, as of May 2025.
This conservative risk profile can help performance during credit shocks. For instance, the fund outpaced its category average during the 2008 global financial crisis as well as the March 2020 coronavirus-driven drawdown. However, this can also hurt when credit risk pays off, most recently when credit spreads stayed muted throughout 2024. Its actively managed peers can lean into riskier assets to find pockets of opportunities.
Adjusting for float steers the index away from agency mortgage-backed securities compared with its category peers and the Bloomberg US Aggregate Bond Index, its non-float-adjusted counterpart. Still, this sector makes up around 20% of the portfolio, the third-largest sector allocation after Treasuries and corporate bonds.
The fund’s average duration has come back in line with the category average, standing under 6.0 years as of May 2025. Recently, low interest rates have incentivized issuers to borrow more for longer terms and thereby lengthened the market’s average duration. The fund’s portfolio reflected this trend, even as some peers kept a tighter leash on interest rate risk. While issuance activities can tilt its duration profile, its muted credit risk is still the main driver of category-relative performance. The fund’s broad scope and low fee should also provide a long-term performance edge.
Vanguard Total Bond Market Index Fund: Performance Highlights
The fund’s exchange-traded share class outpaced the category average by 26 basis points annualized from its 2007 inception through May 2025. Much of its outperformance comes from a conservative risk profile and Treasury-heavy portfolio. This provided better protection during credit shocks as investors fled to safe-haven assets like Treasuries. The fund outpaced the category average by 6.84 and 2.13 percentage points during the 2008 global financial crisis and the pandemic shock in March 2020, respectively.
On the other hand, the fund will lag category peers during risk-on environments. It trailed the category average by 38 basis points in 2024 as tight credit spreads slightly dented excess returns. It recouped some losses during the first four months of 2025 as tariff uncertainties widened credit spreads.
The fund does not currently take any duration bets compared with the category norm, but its average duration used to be slightly longer. This detracted from category-relative returns when yields on long-term bonds rose. Nonetheless, the fund’s main return driver is its conservative credit risk profile. Tempering credit risk helped it outperform the category average by 20 basis points during the market meltdown in 2022, as safe assets fared relatively well that year.
Overall, the fund can be just as volatile as the category average, but its broad scope and low fee should provide a performance edge in the long term.