Two Behemoths Clash For Title Of Biggest Bond ETF

On a global basis last year, investors pumped a record $81.9 billion into fixed-income exchange-traded funds. Despite all the talk about the Federal Reserve possibility raising interest rates, investors' enthusiasm for bond ETFs has not waned in 2015, as such funds have attracted over $44 billion in new assets as of the end of July.

Momentum for bond ETFs has also significantly increased during the current quarter. On a year-to-date basis, just one fixed income fund, the iShares Barclays 1-3 Year Treasry Bnd Fd SHY is among the top 10 asset-gathering ETFs. However, in the third quarter, six of the top 10 asset-gathering ETFs, including SHY, are bond funds.

Related Link: Passive Works With Bond ETFs, Too

Bond Funds

Another member of that group of six is the iShares Barclays Aggregate Bond Fund AGG. As an aggregate bond fund, the iShares Aggregate Bond ETF has plenty of rivals, both actively and passively managed, though none are bigger than the Vanguard Total Bond Market ETF BND.

In fact, in an extension of the long-running iShares/Vanguard rivalry, AGG is currently nipping at BND's heels for the title of biggest U.S. bond ETF.

iShares Versus Vanguard

“BND has a massive $26.5 billion asset base, having debuted back in April 2007,” said Street One Financial Vice President Paul Weisbruch in a note out Friday. Over the year-to-date period, BND has – through creation activity – brought in $700 million; AGG is “hot on its heels,” pulling in more than $3.4 billion in new assets.

Nearly half of AGG's 2015 inflows have arrived in the current quarter. This is the tale of the tape right now: Both ETFs have $26.4 billion in assets, according to issuer data. However, BND's assets under management number is as of August 31 because Vanguard does not update that data on a daily basis. AGG had $26.4 billion in assets as of September 17.

Total Bond Market Exposure

Investors looking for total bond market exposure face decisions with AGG and BND. For example, if one needs to save $1 per year in fees, BND is the way to go because it charges just 0.07 percent per year. However, AGG's annual fee of 0.08 percent is hardly off-putting.

Second, BND's 30-day SEC yield is nearly 30 basis points higher than AGG's.

That being said, AGG's duration is lower. The iShares offering has an effective duration of 5.22 years, while the average duration on BND is 5.7 years. Duration measures a bond's sensitivity to changes in interest rates.