How is "Total World Bond" (BNDW) weighting determined?

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Geographer
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How is "Total World Bond" (BNDW) weighting determined?

Post by Geographer » Wed Jul 10, 2019 3:57 pm

According to Vanguard's website, it appears that the weighting for BNDW is currently 43% US bonds. Is this weighting similar to the Total World Stock (VT), where the weighting is determined by global market cap?

I wonder because I'm considering adding international bonds to my bond allocation, and want to keep a market weight if possible, but don't know how to determine this split for Total US Bond and Total International Bond. My stock allocation is all in Total World, and I'd like a similar world weighted split for the bonds.

Also, is there any plan for Vanguard to release a mutual fund equivalent for BNDW? I prefer the simplicity of mutual funds over ETFs. Thanks in advance!

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Re: How is "Total World Bond" (BNDW) weighting determined?

Post by SimpleGift » Wed Jul 10, 2019 6:18 pm

Geographer wrote:
Wed Jul 10, 2019 3:57 pm
According to Vanguard's website, it appears that the weighting for BNDW is currently 43% US bonds. Is this weighting similar to the Total World Stock (VT), where the weighting is determined by global market cap?
I believe so. It follows the Bloomberg Barclays Global Aggregate Float Adjusted TR Index, which is:
Designed to track the market capitalized weights of the global investment-grade bond market and is comprised of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index and the Bloomberg Barclays Global Aggregate ex- USD Float Adjusted RIC Capped Index (USD Hedged).
For an independent estimate of the U.S./International bond market-cap split, JP Morgan publishes a quarterly chart of global bond market caps (below). This shows the U.S. currently at 37% — but it likely includes many non-investment grade bonds that are not in BNDW's index.

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Re: How is "Total World Bond" (BNDW) weighting determined?

Post by longinvest » Wed Jul 10, 2019 7:08 pm

I think that the index of Vanguard's total world bond ETF is float adjusted. So, its weights are likely to differ from the weights reported by JP Morgan.
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Re: How is "Total World Bond" (BNDW) weighting determined?

Post by asset_chaos » Wed Jul 10, 2019 7:14 pm

I occasionally look at the FTSE World and US BIG Bond Indices. BIG for Broad Investment-Grade, which is the same ballpark as the investment grade index total world bond follows. The June 30th BIG fact sheets have US and ex-US investment grade bonds at about 50:50 of the total market value ($41.3 trillion world and $21.8 trillion US). I do not know the details or differences between the FTSE indices and the index the Vanguard ETF actually follows; however, the description of the FTSE World BIG index
The FTSE World Broad Investment-Grade Bond Index (WorldBIG) is a multi-asset, multi-currency benchmark, which provides a broad-based measure of the global fixed income markets. The inclusion of government, government-sponsored/supranational, collateralized, and corporate debt makes the WorldBIG a comprehensive representation of the global, investment-grade universe.
does not mention float adjusted.

Outside the US Vanguard has mutual fund versions of total world bond index. Why they do not have that for US investors is puzzling. Perhaps, and this is pure speculation, total world bond will follow the path of total international. Total international stock started also as a fund of funds and transitioned after a few years to a single fund.
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Re: How is "Total World Bond" (BNDW) weighting determined?

Post by longinvest » Wed Jul 10, 2019 7:21 pm

From the Portfolio & Management page of BNDW, clicking on the strategy and policy link:
Investment strategy

The fund is a fund of funds and employs an indexing investment approach designed to track the performance of the Bloomberg Barclays Global Aggregate Float Adjusted Composite Index, which is a custom, USD-hedged index designed to track the market capitalized weights of the global investment-grade bond market and is comprised of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index and the Bloomberg Barclays Global Aggregate ex- USD Float Adjusted RIC Capped Index. The fund intends to obtain its exposure to the bonds held in the index by investing all, or substantially all, of its assets in two Vanguard bond index ETFs (underlying funds), rather than in individual securities held in the index. The underlying funds are Vanguard Total Bond Market ETF and Vanguard Total International Bond ETF. The fund’s indirect bond holdings are a diversified mix of investment-grade U.S. and investment-grade non-U.S. government, corporate, and securitized bonds across yield curves and credit risks of multiple countries. Each of the underlying funds seek to track the performance of an index that represents a subset of the Bloomberg Barclays Global Aggregate Float Adjusted Composite Index.
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Re: How is "Total World Bond" (BNDW) weighting determined?

Post by Geographer » Wed Jul 10, 2019 8:33 pm

Thanks for the thoughtful responses, guys. So if I were to use BNDW as a floating benchmark for my bond allocation, would it be reasonable to allocate the overall bond portion to 43% VBTLX and 57% VTABX, rebalancing back to the BNDW benchmark split at my annual rebalance? Ideally I'd just use total world bond fund for simplicity if/when it arrives.

Just feels kind of weird to me that total world stock is more US stock, but total world bond is majority ex-US. I don't know how I'd feel about being overweighted in foreign bonds... But if the total aggregate is weighted that way, then I guess it wouldn't be "overweighted", it'd be world market weighted! Please correct me if I'm wrong! :|

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Re: How is "Total World Bond" (BNDW) weighting determined?

Post by vineviz » Wed Jul 10, 2019 8:39 pm

Geographer wrote:
Wed Jul 10, 2019 8:33 pm
Thanks for the thoughtful responses, guys. So if I were to use BNDW as a floating benchmark for my bond allocation, would it be reasonable to allocate the overall bond portion to 43% VBTLX and 57% VTABX, rebalancing back to the BNDW benchmark split at my annual rebalance? Ideally I'd just use total world bond fund for simplicity if/when it arrives.
As long as you reinvest dividends automatically, you shouldn't ever have to rebalance: the performance of each component fund should result in the combination staying at market weights. The only exception would be a change to one of the underlying indexes.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: How is "Total World Bond" (BNDW) weighting determined?

Post by pascalwager » Thu Jul 11, 2019 7:22 pm

Geographer wrote:
Wed Jul 10, 2019 3:57 pm
According to Vanguard's website, it appears that the weighting for BNDW is currently 43% US bonds. Is this weighting similar to the Total World Stock (VT), where the weighting is determined by global market cap?

I wonder because I'm considering adding international bonds to my bond allocation, and want to keep a market weight if possible, but don't know how to determine this split for Total US Bond and Total International Bond. My stock allocation is all in Total World, and I'd like a similar world weighted split for the bonds.

Also, is there any plan for Vanguard to release a mutual fund equivalent for BNDW? I prefer the simplicity of mutual funds over ETFs. Thanks in advance!
The latest Vanguard data I've seen shows that BNDW holds 48% US (5/31/2019). In a few days the June 30 data should be available.

The weighting should be close to the proportional market values of the two Barclay indexes (which Barclay doesn't provide on their public website).

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Re: How is "Total World Bond" (BNDW) weighting determined?

Post by pascalwager » Tue Jul 16, 2019 1:34 am

pascalwager wrote:
Thu Jul 11, 2019 7:22 pm
Geographer wrote:
Wed Jul 10, 2019 3:57 pm
According to Vanguard's website, it appears that the weighting for BNDW is currently 43% US bonds. Is this weighting similar to the Total World Stock (VT), where the weighting is determined by global market cap?

I wonder because I'm considering adding international bonds to my bond allocation, and want to keep a market weight if possible, but don't know how to determine this split for Total US Bond and Total International Bond. My stock allocation is all in Total World, and I'd like a similar world weighted split for the bonds.

Also, is there any plan for Vanguard to release a mutual fund equivalent for BNDW? I prefer the simplicity of mutual funds over ETFs. Thanks in advance!
The latest Vanguard data I've seen shows that BNDW holds 48% US (5/31/2019). In a few days the June 30 data should be available.

The weighting should be close to the proportional market values of the two Barclay indexes (which Barclay doesn't provide on their public website).
The 6/30/2019 data is posted now and the US portion in BNDW does seem to be 43% even though the BND portion is 48%. I think this is explained by BND containing 5% foreign bonds (as shown for the BND components).

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