Vanguard Long-Term Bond Index Fund Institutional Shares VBLLX

Vanguard Long-Term Bond Index's paper-thin fee and comprehensive portfolio make it a compelling option.

The Bloomberg Barclays US Long Government/Credit Index, which underpins this fund, takes a simple but sound approach. The benchmark sweeps in investment-grade government and corporate bonds with at least 10 years until maturity. It filters out riskier types of bonds and employs a minimum size threshold to keep the portfolio away from the illiquid corners of the market. Market-value weighting efficiently determines the fund’s positions and diversifies its portfolio.

The fund balances its assets between government and corporate bonds, but a sizable portion of its category peers focus only on corporate debt. Its 50% stake in Treasuries can look lopsided versus the category average’s sector composition as a result. This also lands the fund on the higher-quality side of its category. Over half of this portfolio has AA credit ratings as of June 2025. This quality tilt helps the fund better insulate returns during major credit shocks, such as in March 2020.

The fund takes on more interest rate risk instead. Its average duration is often one to two years longer than that of the category average. The 10-year minimum maturity requirement keeps the fund at the longer end of the yield curve, unlike more flexible peers that reach into intermediate-term bonds. Interest rate shocks can spell trouble for this fund; the exchange-traded fund share class trailed the category average by 3.17 percentage points in 2022, amidst several interest rate hikes. But the fund reaps gains when long-term bond yields fall, such as in the middle of 2024.

Market-value weighting is an efficient approach, allowing this fund to levy a tiny fee. Its four share classes cost between 0.03% and 0.06% annually, landing them in the cheapest quartile of their category. This, combined with the fund's broad and category-representative portfolio, makes it a great option for long-term bond exposure.

The fund’s broad and diversified portfolio of high-quality long-term bonds will better insulate returns in choppy markets, except when rising interest rates hurt its longer duration. It earns an Above Average Process Pillar rating.

The fund tracks the Bloomberg Barclays US Long Government/Credit Float Adjusted Index, which holds investment-grade government and corporate bonds with at least 10 years to maturity. Eligible bonds must be taxable and have at least USD 300 million in outstanding face value. The liquidity threshold ensures selected bonds are investable without removing too much of the opportunity set. The index excludes securitized bonds and riskier types like those with equity features and contingent capital securities.

It weights selected bonds by their market value, efficiently leveraging the market’s consensus opinion. The index removes the amount held in the Federal Reserve’s System Open Market Account from calculation to adjust for public float, which slightly reduces the portfolio’s stake in Treasuries.

The fund’s sector exposure sports an even split between government and corporate bonds, often investing around 50% and 45% of its assets in these sectors, respectively. But its sizable corporate stake still pales in comparison to many category peers that focus solely on corporate bonds. The fund tends to take on less credit risk than its average peer as a result. It historically parked around 55% of its portfolio in AA rated bonds, a byproduct of its Treasury allocation, compared with only 25% for the category average. This means the fund will better protect investors from credit shocks, but it will underperform when credit spreads tighten. Nonetheless, credit risk still affects this portfolio. BBB rated bonds account for over 20% of fund assets and should help it capture some upside when credit risk is in favor.

What the fund lacks in credit risk, it makes up for with interest rate sensitivity. As of May 2025, the fund’s average duration stood at 13 years—one year longer than that of the category average. Category peers with more flexible mandates reach further into intermediate-term bonds, while this fund keeps most of its assets in bonds with an effective duration longer than 10 years. The fund will likely trail the category average when long-term bond yields rise, and vice versa when interest rates fall.

Vanguard's fixed-income index team has many advantages. It taps into a global network of portfolio managers, sector specialists, and trading desks to deliver accurate index tracking in the markets that it touches. It earns an Above Average People Pillar rating.

Experienced managers make up Vanguard’s team. They’re supported by a deep bench of talent that allows them to focus on portfolio construction and tracking performance. Each fund has a lead manager who collaborates with traders and sector specialists to ensure tracking performance stays within well-defined guardrails.

Specialization extends in many directions. ETF specialists help manage creation and redemption baskets, while a dedicated data team handles index changes and corporate actions. International specialists help manage portfolios in local markets outside of the US to keep costs down and tracking tight.

Many bonds aren’t available for trading, so index funds cannot hold every bond in an index. Despite that drawback, Vanguard’s team has continued to invest in new ways to improve the precision of its tracking efforts while keeping a lid on trading costs. It recently expanded its quantitative unit, which developed an optimization tool that incorporates traders' insights and liquidity data to improve tracking performance.

Vanguard maintains its High Parent Pillar rating as it continues to grow under new leadership.

CEO Salim Ramji has had a busy first year captaining Vanguard’s crew, and the ship remains pointed in the right direction. The firm made its largest round of fee cuts in early 2025, which came at an estimated cost of USD 350 million. It established a separate division dedicated to its advice and wealth management efforts, a sign that it wants to seriously compete within those lines of business. Asset growth has continued to be a huge success. Only BlackRock’s inflows rival the money Vanguard is taking in. Likewise, the number of clients it serves has more than doubled since 2015.

Despite that success, an ever-growing number of clients has presented a challenge: Vanguard can’t grow its services fast enough to keep up with demand. In some instances, it has had to curb certain services and capabilities or raise fees on others to cope, causing some loyal clients to criticize what they perceive as deteriorating services.

Vanguard has ambitions to bring its disruptive legacy to the bond market. It created roughly a dozen low-cost bond exchange-traded funds for US investors and several others abroad over the 12 months through June 2025. All have low fees in their respective categories, and the actively managed strategies align with Vanguard’s philosophy. They are relatively easy to understand and are conservatively managed.

Vanguard has another opportunity to prove that clients are still its priority. On the surface, its endeavor into the high-fee deal-making world of private assets alongside Wellington and Blackstone looks like a cultural mismatch. So far, the collaboration hasn’t produced anything that’s concerning.

High interest rates in recent years dented the fund’s edge. The ETF share class lagged the category average by 15 basis points annualized from its 2010 benchmark switch through June 2025. The fund’s Sharpe ratio—a measure of risk-adjusted returns—also took a hit. A combination of rising long-term bond yields and tight credit spreads depressed fund returns for most of 2025’s first half.

This fund’s long-term-only portfolio suffers more than the category norm when interest rates rise, since many peers have broader maturity bands. It slid 3.17 percentage points further than average in the 2022 market meltdown when the Fed rapidly hiked interest rates. Yields on long-term bonds have been elevated since, and the fund continued to lag peers over the past few years. The fund will outperform when interest rate risk is rewarded, as it did when the Fed cut rates in the middle of 2024, but that timing can be hard to predict.

The fund’s high-quality portfolio shines the brightest when credit spreads widen. It outpaced the category average by 7.6 percentage points during the March 2020 covid drawdown. Nonetheless, interest rate risk still wields the biggest influence on this fund’s category-relative performance. Falling yields helped it beat the category average by 1.7 percentage points in the last two months of 2023, despite tightening credit spreads.

Vanguard Long-Term Bond Index Instl's Prospectus Adjusted Expense Ratio is 0.03% per year. It places it in the cheapest quintile of the Morningstar US Fund Long-Term Bond Category, where the median fee is 0.49% per year. This cost positioning translates into a Medalist Rating Price Score of 2.03, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.