The Vanguard Total Bond Market Index Fund ("VBMFX") is designed to provide broad exposure to the U.S. investment-grade bond market. The fund typically invests in an allocation of roughly 30% corporate bonds and 70% government bonds of all maturities. Because it invests in a wide variety of investment-grade bonds, this fund makes a good core fixed-income holding for a broader portfolio. With an expense ratio of 0.20%, VBMFX also rates as one of the least expensive fixed-income mutual funds available.
With an average duration of 5.6 years, VBMFX rates as a moderate risk investment. While it invests entirely in the investment-grade market, the fund is exposed to interest rate fluctuations. Those movements can affect the fund's principal value both positively and negatively. VBMFX has benefited from the market's persistent low interest rate environment, but much of the fund's return does not show up in the share price. Fixed-income products derive much of their returns from dividend income instead of capital gains. As of April 12, 2016, VBMFX had a yield of 2.01%. Interest rates have fluctuated over the past five years, affecting the short-term returns of the fund. Looking at the fund's returns over the past five years allows investors to see how VBMFX's performance has reflected those interest rate movements.
Lack of Volatility
Good fixed-income funds combine low share price volatility with high income. The Vanguard Total Bond Market Index Fund has been able to deliver that combination over the past five years. Over the 60 one-month observations during the five-year period from 2011 through 2015, the fund has posted a move of 1% or greater in 11 of those 60 months. Just four of those moves have been negative. This historical lack of volatility and downside protection from the fund could appeal to certain investors, such as retirees, who are looking for conservative income from their portfolios.
December Is Historically Weak
It is not unusual for the markets to underperform around the end of the year. Investors typically engage in year-end tax planning and holiday spending, and that often requires individuals to pull money out of their accounts. VBMFX has seen some of its worst monthly performances during December. Over the past five years, the fund has lost an average of 0.5%. It has also posted declines in four straight years in December.
June Losing Streak
While December has been one of the fund's weakest-performing months, June is the month that has performed the worst. Over the 2011 to 2015 time period, the fund has averaged a loss of 0.8%. These results include two months where the fund posted a loss of greater than 1.2%. In addition, the month of June is the only one that has seen losses in all five years.
Consistent Underperformance in March
March is another month in which the Vanguard Total Bond Market Index Fund has performed poorly. The fund has posted a relatively modest average loss of just 0.3% overall. However, its consistency in failing to deliver gains stands out. VBMFX has reported losses in six of the past seven years. It has also seen losses in nine of the past 11 years.
April and July Perform Best
VBMFX has delivered some of its best performances during April and July. The month of April has been the fund's top performing month, with an average gain of 0.6%. While VBMFX posted a 0.5% loss in 2015, it delivered gains in six consecutive years prior to that year. July is the fund's second best-performing month, with an average 0.5% monthly increase. The month of July has also shown great consistency in returns as it has seen gains in eight of the past 10 years.