V Vanguard’s new world order in fixed-income ETFs

In the fixed-income exchange-traded fund arena, a new world order has been ushered in by the Bloomberg Vanguard Group.

The Vanguard Total Bond Market ETF ticker BND with assets of roughly $83.8 billion, has exceeded the $83.2 billion iShares Core US Aggregate Bond ETF AGG to become the world's biggest bond ETF, according to Bloomberg data.

Larry Fink s BlackRock Inc. has been the biggest issuer in the $6.6 trillion ETF arena, but Vanguard has tightened its grip on the industry. For the second straight years, the John Bogle-founded giant, which is now the second biggest US ETF issuer, has increased its market share of industry assets. It has narrowed the gap between Vanguard's $1.86 trillion US ETF assets under management and BlackRock's $2.2 trillion US ETF business.

A down market is Vanguard's Briar Patch. Eric Balchunas, senior ETF analyst at Bloomberg Intelligence said that this is when product climbs the fastest because asset growth can only come from flows and BND is an inflow machine. This is a result of the great cost migration that Vanguard has ushered in. The flip comes despite BlackRock attempting to lure investors to its bond funds. The asset manager cut fees on AGG to 0.03% from 0.04% in April to match BND's expense ratio. It lowered costs on two other fixed-income ETFs in January, countering similar moves by State Street Corp. and Vanguard.

Since the introduction of iShares 20 years ago, fixed income ETFs have seen enormous growth and are now fundamental to how investors of all types can access and trade the fixed income markets, a BlackRock spokeswoman wrote in an email. Over the last year, iShares has been leading the industry in fixed-income ETFs with over $62 billion, more than twice the nearest competitor, despite the most challenging fixed-income environment in many decades. Vanguard's dominance extends down the leaderboard. Four of the five largest funds are Vanguard products, despite BlackRock still having the most fixed-income ETF assets under management.

AGG has seen its assets drop after entering the year with $92 billion, but BND has stayed the same size amid a turbulent market. Despite both ETFs posting comparable returns, investors have poured around $8.2 billion into BND and have yanked nearly $100 million from AGG this year, according to Bloomberg data.

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