The Fidelity Bond ETF Quietly Outperforming Vanguard’s BND Over The Last Decade

The Vanguard Total Bond Market ETF (BND) is the largest bond ETF in the U.S. market, with roughly $157 billion in assets under management, or nearly $394 billion when its mutual fund share class is included. It got there thanks to Vanguard’s strong reputation, broad diversification, and an ultra-low 0.03% expense ratio, which remains among the cheapest ways to access the U.S. investment-grade bond market.

Low fees, however, have not necessarily translated into the strongest performance. One notable alternative is the Fidelity Total Bond ETF (FBND). Despite charging a higher 0.36% expense ratio for active management, it has rewarded investors so far. According to testfolio, over the 11.73-year period from October 9, 2014 through July 2, 2026, FBND delivered a 34.96% cumulative total return, assuming distributions were reinvested, compared with 23.99% for BND.

One reason is that active management tends to have a stronger case in fixed income than it does in equities. Bond markets are generally less transparent, many securities trade infrequently, and managers have more levers they can pull, including sector allocation, credit quality, duration, security selection, and derivatives. Those opportunities can create additional value when executed well. Here’s how FBND approaches that challenge.

What Is FBND?

FBND is an actively managed bond ETF designed to outperform the Bloomberg U.S. Aggregate Bond Index while maintaining broadly similar interest-rate sensitivity through comparable duration. Although much smaller than BND, FBND remains a sizable ETF in its own right with approximately $26 billion in assets under management.

Rather than simply replicating the benchmark, the fund follows a “core-plus” approach. While the Bloomberg U.S. Aggregate Bond Index, and therefore BND, is dominated by U.S. Treasuries, investment-grade corporate bonds, and agency mortgage-backed securities, FBND has the flexibility to allocate beyond those sectors. Managers can invest in high-yield bonds, which are bonds rated below investment grade (below BBB), as well as emerging market debt issued.

The active mandate also allows Fidelity’s managers to move beyond market-cap weighting. In addition to selecting individual bonds, they can use instruments such as interest-rate swaps, credit default swaps, and options to manage interest-rate exposure, hedge credit risk, or express tactical views on the bond market.

FBND vs. BND

The historical performance advantage has been accompanied by stronger income as well. As of today, FBND offers a 4.75% 30-day SEC yield, compared with 4.52% for BND. Much of that difference comes from the fund’s flexibility to invest in higher-yielding below-investment-grade corporate bonds and emerging market debt.

Historically, those additional sources of yield have helped FBND outperform despite charging an expense ratio that is twelve times higher than BND’s 0.36% versus 0.03%. That does not necessarily make BND a poor investment. For investors who simply want broad exposure to the U.S. investment-grade bond market at the lowest possible cost, it remains an excellent core holding.

If, however, you’re willing to pay for active management, 0.36% is still quite reasonable by industry standards. Fixed income is also one of the few asset classes where active managers arguably have a larger opportunity set than in equities because of the market’s complexity and lower transparency.

Even when active calls prove incorrect, the outcomes tend to be measured in modest differences in yield, duration, or credit exposure rather than the dramatic stock-specific mistakes that can occur in equity portfolios. For investors comfortable with that trade-off, FBND has demonstrated that active management can justify its fee.

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