BND vs BNDX: Optimal Investment Outlook
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BND and BNDX are two popular bond ETFs offered by Vanguard. Investors looking to invest in bonds through an ETF may wonder which one is the better choice.
While both ETFs have similarities, there are some key differences that investors should consider before making a decision.
BND vs BNDX: BND is a total bond market ETF that invests in U.S. investment-grade bonds. It seeks to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. BNDX, on the other hand, is an international bond ETF that invests in non-U.S. investment-grade bonds. It seeks to track the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index.
Investors may want to consider factors such as performance, volatility, credit ratings, and expenses when deciding between BND and BNDX.
By comparing these factors, investors can determine which ETF aligns better with their investment goals and risk tolerance.
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What are BND vs BNDX?
BND and BNDX are both bond exchange-traded funds (ETFs) offered by Vanguard. BND tracks the Barclays Capital U.S. Aggregate Bond Index, which includes only U.S. bonds with an investment-grade credit rating (BBB and above).
BNDX, on the other hand, tracks the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which provides exposure to the global bond market and is comprised of bonds from various countries and credit ratings.
One of the main differences between BND and BNDX is the credit quality of the bonds they hold. BND holds mostly AAA-rated bonds, while BNDX is composed of bonds of mixed credit ratings.
The largest portion of BNDX is made up of BBB-rated bonds, followed by AA and A-rated bonds. BNDX also holds bonds with varying maturities, with the biggest portion made up of much shorter-term bonds ranging from 1-3 years.
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BNDX also implements a hedging strategy to mitigate currency exchange rate risks. This is because BNDX invests in bonds denominated in foreign currencies, which exposes investors to currency risk. The hedging strategy helps to eliminate this risk by locking in exchange rates.
When it comes to risk-related metrics, BNDX performs better than BND with a compound annual growth rate (CAGR) of 4.57% vs. 4.16%. BNDX is also less volatile than BND and experiences lower drawdowns.
This is because BNDX is more diversified internationally, and the increased diversification smoothes changes in national interest rate policy.
In terms of fees, BND has an expense ratio of 0.035%, which is much lower than the average expense ratio of 0.28%. BNDX, on the other hand, has an expense ratio of 0.08%, which is nearly triple that of BND.
A portfolio backtest of $10,000 starting in 2014 shows that a $10,000 BNDX portfolio would have resulted in $13,320, which is equal to a CAGR of 4.57%. This is higher than the CAGR of 4.16% for a $10,000 BND portfolio.
BND vs. BNDX: Key Differences
Table of BND vs BNDX
| ETF | Geographical Exposure | Currency Exposure | Yield | Expense Ratio |
|---|---|---|---|---|
| BND | U.S. bonds | USD | 2.34% | 0.035% |
| BNDX | International bonds | USD hedged | 2.22% | 0.08% |
BND vs BNDX Geographical Exposure
BND tracks the Barclays Capital U.S. Aggregate Bond Index, which includes only U.S. bonds with an investment-grade credit rating (BBB and above).
Meanwhile, BNDX tracks the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which provides exposure to the global bond market and is comprised of bonds from various countries and credit ratings.
As a result, BNDX is more diversified internationally than BND.
BND vs BNDX Currency Exposure
BND is exposed to the U.S. dollar, while BNDX is hedged against currency exchange rate risks. This means that BNDX implements a hedging strategy to mitigate the impact of currency fluctuations on returns.
BND vs BNDX Yield and Expenses
BND has a higher yield than BNDX, with a yield of 2.34% compared to BNDX’s yield of 2.22%. However, BNDX has a higher expense ratio than BND, with an expense ratio of 0.08% compared to BND’s 0.035%.
BND vs BNDX Credit Quality and Maturity
In terms of credit quality, BND holds mostly AAA-rated bonds, while BNDX is composed of bonds of mixed credit ratings. The largest portion of BNDX is made up of BBB-rated bonds, followed by AA and A-rated bonds.
BNDX also holds bonds with varying maturities, with the biggest portion made up of much shorter-term bonds ranging from 1-3 years.
BND vs BNDX Risk Metrics
When it comes to risk-related metrics, BNDX performs better than BND with a compound annual growth rate (CAGR) of 4.57% vs. 4.16%.
BNDX is also less volatile than BND and experiences lower drawdowns. This is because BNDX is more diversified internationally, and the increased diversification in national interest rate policy.
BND and BNDX have different investment objectives and offer different levels of diversification, credit quality, and currency exposure. Investors should carefully consider their investment goals and risk tolerance before choosing between the two ETFs.
BND vs BNDX: Which is Better?
Investment Goals
Investors with a preference for U.S. bonds may find BND to be a better fit for their investment goals. On the other hand, those looking for exposure to the global bond market may find BNDX to be a better option. BNDX also offers a hedging strategy to mitigate currency exchange rate risks, which may be attractive to some investors.
Risk Tolerance
BNDX is less volatile than BND and experiences lower drawdowns. This is because BNDX is more diversified internationally, and the increased diversification smoothes changes in national interest rate policy. Investors with a lower risk tolerance may prefer BNDX over BND.
Tax Considerations
Investors should also consider tax implications when choosing between BND and BNDX. BND has a higher percentage of U.S. bonds, which may be subject to higher tax rates. BNDX, on the other hand, has exposure to international bonds, which may have lower tax rates. Investors should consult a tax professional for advice on their specific tax situation.
BNDX performs better than BND with a compound annual growth rate (CAGR) of 4.57% vs. 4.16%. BNDX is also less volatile than BND and experiences lower drawdowns.
BND has a much lower expense ratio of 0.035%, compared to BNDX’s expense ratio of 0.08%. Investors should consider their investment goals, risk tolerance, and tax considerations when choosing between BND and BNDX.
A portfolio backtest of $10,000 starting in 2014 shows that a $10,000 BNDX portfolio would have resulted in $13,320, which is equal to a CAGR of 4.57%. This is higher than the CAGR of 4.16% for a $10,000 BND portfolio.
FAQs
What Type Of Bond Is BNDX?
BNDX is an international bond ETF that tracks the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged).
This means that it provides exposure to the global bond market and is composed of bonds from various countries and credit ratings.
The largest portion of BNDX is made up of BBB-rated bonds, followed by AA and A-rated bonds. BNDX also holds bonds with varying maturities, with the biggest portion made up of much shorter-term bonds ranging from 1-3 years.
How Much Dividend Does BND Pay?
The dividend amount paid by BND varies based on market conditions and other factors. However, BND is known for its stable and consistent dividends.
In 2022, BND paid a dividend of $2.57 per share. It’s important to note that dividends are not guaranteed and can fluctuate based on market conditions.
When it comes to risk-related metrics, BNDX performs better than BND with a compound annual growth rate (CAGR) of 4.57% vs. 4.16%.
BNDX is also less volatile than BND and experiences lower drawdowns. This is because BNDX is more diversified internationally, and the increased diversification smoothes changes in national interest rate policy.
In terms of fees, BND has an expense ratio of 0.035%, which is much lower than the average expense ratio of 0.28%. BNDX, on the other hand, has an expense ratio of 0.08%, which is nearly triple that of BND.
BNDX’s higher expense ratio may be justified by its better performance and lower risk.
A portfolio backtest of $10,000 starting in 2014 shows that a $10,000 BNDX portfolio would have resulted in $13,320, which is equal to a CAGR of 4.57%. This is higher than the CAGR of 4.16% for a $10,000 BND portfolio.
Investors should carefully consider their investment goals and risk tolerance before choosing between BND and BNDX.
Bottom Line: BND vs BNDX
BND and BNDX are two bond ETFs with different investment objectives. While BND tracks the Barclays Capital U.S. Aggregate Bond Index, which includes only U.S. bonds with an investment-grade credit rating, BNDX tracks the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which provides exposure to the global bond market and is comprised of bonds from various countries and credit ratings.
BNDX also implements a hedging strategy to mitigate currency exchange rate risks, which is not present in BND. In terms of credit quality, BND holds mostly AAA-rated bonds, while BNDX is composed of bonds of mixed credit ratings.
The largest portion of BNDX is made up of BBB-rated bonds, followed by AA and A-rated bonds. BNDX also holds bonds with varying maturities, with the biggest portion made up of much shorter-term bonds ranging from 1-3 years.
When it comes to risk-related metrics, BNDX performs better than BND with a compound annual growth rate (CAGR) of 4.57% vs. 4.16%. BNDX is also less volatile than BND and experiences lower drawdowns. This is because BNDX is more diversified internationally, and the increased diversification smoothes changes in national interest rate policy.
In terms of fees, BND has a lower expense ratio of 0.035%, which is much lower than the average expense ratio of 0.28%. BNDX, on the other hand, has an expense ratio of 0.08%, which is nearly triple that of BND.
A portfolio backtest of $10,000 starting in 2014 shows that a $10,000 BNDX portfolio would have resulted in $13,320, which is equal to a CAGR of 4.57%.
This is higher than the CAGR of 4.16% for a $10,000 BND portfolio. Overall, investors looking for exposure to the global bond market with a lower risk profile may prefer BNDX due to its diversification and lower volatility.
Those looking for a low-cost option with exposure only to U.S. bonds may prefer BND. It is important to consider investment objectives, risk tolerance, and fees when choosing between the two ETFs.
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