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Investing Specialists

Vanguard Bond Funds Quietly Get the Job Done

Family's funds negotiate a great decade for bonds, and are well-positioned for a challenging one ahead.

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A lot of money has poured into bond funds in the past year, and strong fixed-income performance over the past decade has more than a little to do with it.  Vanguard Total Bond Market Index (VBMFX) gained 6% in the 10 years ended April 1, 2010, while  Vanguard Total Stock Market Index (VTSMX) made no progress during the period despite setting records on the upside and downside in the intervening years. How did Vanguard's fixed-income funds fare in the bond decade, and what may the future hold? For answers, I turned to Morningstar associate director of fund analysis Michael Herbst, who covers many of Vanguard's bond funds. The rest of this article is his work.

Out of Sight, Out of Trouble
Over the past decade, Vanguard's fixed-income operation has avoided the limelight. Indeed, Vanguard's fixed-income crew stands out in part for what it hasn't done. While many asset managers launched a dizzying array of novel bond funds, many of which either collapsed in 2008's market turmoil or have fallen short of expectations, Vanguard launched just one new strategy:  Vanguard Inflation-Protected Securities (VIPSX), which opened its doors in June 2000.

Over the past few years, it has been rolling out a series of fixed-income exchange-traded funds. Some are ETF share classes of existing index funds, such as  Vanguard Total Bond Market ETF (BND) and  Vanguard Short-Term Bond ETF (BSV), while others represent new index funds. For instance, the family recently launched seven new ETFs tracking narrower subsectors of the BarCap Government and Corporate Bond indexes. An ETF share class for the actively managed Inflation-Protected Securities also is in the works.

Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.