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Recently “core” and “core-plus” actively managed total bond ETFs have become available. A Wall Street Journal “Not All Total Bond Market ETFs Are the Same…” makes many interesting points about managed total bond ETFs, including the point that they have higher returns than index total bond ETFs. Owning only one total bond ETF that returns more than the index makes for an uncomplicated and appealing portfolio. If you want the simplicity of owning only one bond ETF rather than actual bonds or multiple bond ETFs that yield more than the index, what should you consider? Can you have low risk and high return with one bond ETF?
For example, Vanguard offers the Total Bond Market (BND), an index bond ETF containing only domestic bonds, average 8-year maturity with 69% government and 31% corporate investment-grade holdings. Vanguard also offers Core Bond ETF (VCRB). It is an actively managed bond ETF and containing similar components as BND except for less government (48%) and more corporate investment-grade (52%) holdings. Not surprising, the total return of 7.08% for BND in 2025 is less than VCRB at 7.56%. The annual expense fee for BND is 0.03% vs. 0.10% for VCRB. Vanguard rates the risk/reward scale at 2 for both ETFs.
Many companies offer similar managed “core” and “core-plus” bond ETFs that represent the total bond market. They achieve higher returns than index total bond ETFs by increasing the risk with more corporate debt, high-yield debt, and selected foreign debt. They charge an annual fee in the range of 0.20% to .40% or more. Typically, management has discretion to vary the number of high-risk holdings over time so it takes some effort to find the details about their current holdings.
Currently I manage the risk and return of my bond holdings by owning a portfolio of index bond ETFs rather than one “core” ETF. My usual portfolio has domestic bonds weighed at 70% and international bonds at 30%. For international bonds I use an index ETF holding only international bonds with an 8-year average maturity. Within the domestic holdings I use BND weighted at 50%, an index ETF with short term corporate investment-grade holdings at 25% and an index ETF with intermediate term corporate investment-grade holdings at 25%. In 2024 the one-year total return from my four ETFs was 2.93% vs. 2.11% for VCRB. In 2025 the results were reversed with my four ETFs at 6.11% vs. VCRB at 7.56%. Note that the inception date for VCRB is 12-12-2023 so no more data points are available.
The simplicity of holding one total bond ETF with similar risk and return as my four ETFs is appealing. However, the simplicity disappears if the holdings inside the one core ETF are hard to identify. Do I need to monitor the current holdings of a managed bond ETF to be sure it has a reasonable balance of low-risk and high-return holdings? Is monitoring one managed core bond ETF more or less work than re-balancing a portfolio of index bond ETFs to match the target percentages? Note that I would like to know where my assets are invested and that is easy to do with the four index ETFs. At the same time, I value the simplicity of owning just one bond ETF. I am interested in how others have addressed these questions.
I’m still in the accumulation phase so keep things very simple with my bond holdings with a total bond market index fund as my single bond investment.
In retirement I will add short-term bond index funds. I never intend on owning an actively managed fund, even in the bond space.
I like simplicity as well, and your current approach is more complexity than I need. I also don’t care to monitor my funds’ underlying holdings too closely.
Our largest bond holding is Fidelity Total Bond (a core plus fund, FTBFX and FBND) followed by Fidelity Inflation Protected Bond Index (FIPDX). Both are gold-rated by Morningstar. These are both intermediate duration and so there’s interest rate risk to consider. We also hold a significant amount of cash in a 401(k) stable value fund.
You ask three questions, one in the title and two more at the end of the text:
“Can one “core” total bond ETF replace the complexity of your bond holdings?”
Probably not just one. I’m not aware of a total bond fund that owns TIPS for example.
“If you want the simplicity of owning only one bond ETF rather than actual bonds or multiple bond ETFs that yield more than the index, what should you consider?”
A good core plus fund can do this for you. Yes, they take on some other risks to do so, but so do the multiple ETFs you’re holding.
“Can you have low risk and high return with one bond ETF?”
As others have said with more words, no.
I would worry about interest rate risk with the long duration of your bond funds. Personally I have been using individual treasuries (6 mo -1yr terms). If rates of intermediate treasuries increase significantly I would consider extending maturities with T bond ladder. No state tax worries either
Concur w Ed M and Mark C. I’m looking for simplicity, safety, and a counter to stocks. For me, it’s Intermediate Treasuries (granted there’s a bit of interest rate risk) and the TSP G Fund which technically is probably cash but can perform like a bond w no interest rate risk. Currently 4.5%.
I agree with Mark Crothers regarding where to take risk. I prefer mine to be in stocks, rather than bonds. Here’s an article from Adam Grossman with his thoughts about bonds.
Joan,
I did not see this post on the day it was posted, but it’s ironic that just before reading this I read a Morningstar article about bond issuances this year.
The article states, “What’s more, Nguyen says Vanguard estimates that hyperscalers have this year only raised somewhere over half the funding they need. She added that AI-related investments could reach $800 billion, underscoring the scale of capital required
The investment-grade bond market has traditionally been more heavily concentrated in financials. But Nguyen says this debt could push the tech sector to take up a bigger slice of the corporate bond market than the so-called big six financial companies
This could impact how the overall investment-grade bond market behaves relative to the stock market, where returns are dominated by many of the same mega-cap tech stocks. “It’s definitely going to be more correlated,” Nguyen says.
After my reading so far this am I have two thoughts:
1) I would caution that your bond portfolio may be acting more like stocks than a diversifier.
2) You only mention intermediate term bonds which puts you at interest rate risk. I am only just now showing a positive return from my intermediate term bond fund since the ‘22 swoon.
As always, it comes down to personal philosophy. I don’t see bonds as a returns engine, for me they’re purely a stability tool. So I keep it simple: individual bonds and a small allocation to a global bond fund for easy rebalancing. Equities do the heavy lifting on returns.
As for your question: can you get low risk and high return from a single bond ETF? The asset in question here is a core plus managed bond ETF, and my opinion is no. Core plus is doing exactly what the name suggests: it stretches beyond investment-grade into higher-yielding, higher-risk territory to generate that extra return. You’re not getting something for nothing. The excess return is compensation for taking on more credit risk, more duration risk, or both. That’s not necessarily a bad thing, but you need to be clear-eyed about what you’re holding when the music stops.
Joan, thanks for sharing your portfolio detail. It sounds like your thinking is similar to mine. But you’ve done a better job measuring performance against the index. My Bond ETF portfolio is less than a year old.
Like you described, I also use BND for a core holding, but I decided to to mix it with BNDP when Vanguard announced it. So I hold 32% BND, 36% BNDP, and the32% balance is split between a couple targeted Bond ETFs to try and avoid correlation of returns across investments. So I use a total of four Bond ETFs in the portfolio.
I don’t mind saying that I have no idea if this is the right path to take, but I’ve been satisfied with the results.