A total bond fund can be an exchange-traded or a mutual fund aiming to emulate an expansive bond index. Such a fund comprises disparate securities from various maturities, drawn both from the private and public sectors. A usual benchmark for these funds is the Bloomberg Aggregate Bond Index, which includes high-grade mortgage-backed securities, municipal bonds, corporate bonds, and Treasury bonds.
In efforts to replicate unavailable issues for purchase, total bond funds may invest in bonds with similar rating, class, and maturity. This is largely due to the distinctiveness and relative illiquidity of bond markets when compared to equities. It's essential for a total bond fund’s interest rate and maturity to be similar to the basic index.
Interestingly, total bond fund portfolios are somewhat freer in selecting securities than total stock funds. The lower liquidity of individual bond issues compared to shares means some funds avoid certain issues present in the benchmark index, opting instead for bonds not included.
A sizeable portion of total bond funds, typically 20%, allows managers discretion in selecting bonds and holding them in non-Barclays Index assets, such as international bonds, low-rated corporate paper, and derivatives. This provides managers the opportunity to invest in noncorrelated assets while maintaining the fund’s risk profile within bounds similar to the Barclays Index.
Vital risk measurements to closely align with the index are maturity (specifically, weighted average maturity) and duration (or sensitivity to fluctuations in interest rates).
The Vanguard Total Bond Market Index aims for broad exposure to investment-grade American bonds. Accordingly, the fund invests roughly 30% in corporate bonds and 70% in all maturities of U.S. government bonds. As of June 2026, the fund had a 10-year annualized return of 1.70%.
Like other bond funds, one risk is that a rise in interest rates can lower the price of portfolio bonds-thereby reducing the fund's NAV. As the fund invests across all segments and maturities in the fixed-income market, investors might consider it their core bond holding.