Bond Index Funds-a Synopsis

By Sam Henry, Contributing Writer

It is fitting that a detailed discussion about bond index funds should
begin by mentioning John Bogle and Vanguard Mutual funds. These are two forces that originated bond index funds and index funds in general. The first bond index fund was in the early conceptual stages in 1985 when an article in Forbes magazine discussing the inability of high-cost bond fund managers to match the bond market indexes asked, "Vanguard, where are you when we need you?"

This was all the encouragement that Bogle and company needed. By the next year Vanguard's Total Bond Market Index (VBMFX) was up and running. SEI Funds also started a bond index fund that year. In 1991 Galaxy Funds opened an index fund of government long bonds and Mainstay Funds started its long-term bond index. Also in 1991 Charles Schwab Co. opened its Short-Term Bond Market Index. In 1994, Vanguard created the first series of bond index funds of varying maturities, short, intermediate, and long.

Although John Bogle didn't see any pressing need at the time for this series of bond index funds, he said that he was anticipating the market for bond index funds that he knew would develop. Today there are 29 bond index funds. Vanguard's are currently preeminent among them. Their four bond index funds have $15.8 billion in assets-about 75% of all bond index fund assets. And they are reportedly also the largest bond fund managers in general with $80 billion under management.
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