Vanguard winning at bond inflows, too

But iShares is strong competition.

Most people know that Vanguard has been vacuuming up stock assets faster than an elephant in a peanut warehouse. But what company is leading in scooping up bond-fund assets?

That would be Vanguard.

Of the 30 top-selling taxable bond mutual funds and exchange-traded funds in the Morningstar database, 10 are Vanguard funds. Altogether, they have seen estimated net flows of $113 billion in the past 12 months, or 49% of the total net inflows to the 30 best-selling funds and ETFs.

The top-selling Vanguard bond fund, Vanguard Total Bond Market II Index fund (VTBIX), saw net inflows of $28.9 billion in the past 12 months, according to Morningstar estimates. Vanguard Total International Bond Index fund (VTIFX) took second place, with a $26 billion inflow.

Not surprisingly, the bulk of the hottest-selling bond funds are passively managed index funds. Only a handful of actively managed funds — including PIMCO Income (PIMX), with $21.8 billion in net new cash and Prudential Total Return Bond (PDBAX), with $8.7 billion. “Bond funds are still a place where investors and advisers believe in active management,” said Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA.

Vanguard isn’t without some tough competition — particularly iShares, which has the oldest exchange-traded bond funds. Four iShares funds, launched by then-owner Barclays Global Investors, were the first bond ETFs ever launched, and are celebrating their 15th anniversary. While two Vanguard ETFs are the best selling bond ETFs over the past 12 months, iShares has five of the best-selling bond ETFs. And of the 30 top-selling bond ETFs, 17 have “iShares” in front of their names.

Mr. Rosebluth thinks the trend towards bond ETFs will continue, and that Vanguard and BlackRock will continue to dominate. “Vanguard and BlackRock are dominating not only in ETF sales, but in particular in fixed income ETFs. That will only accelerate as investors get more comfortable with the ETF wrapper.”

The low fees offered by most ETFs are a big selling point. The bellwether 10-year Treasury note currently yields just 2.3%, and the average intermediate-term government bond fund has gained just 1.1% the past 12 months. Both fund companies have the economies of scale to cut expenses to the bone — and in so doing, forcing competitors to keep costs low, too. Mr. Rosenbluth counts 44 bond ETFs with expense ratios of 0.1% or less, including two funds — Schwab U.S. Aggregate Bond ETF (SCHZ) and Vanguard Total Bond Market Index fund (BND) — that charge just 0.04% a year in expenses.