NEW YORK ( TheStreet) -- Shareholders of Vanguard Total Bond Market Index ( VBTLX) have reason to be disappointed. In 2012, The Vanguard mutual fund returned 4.2%, compared to 7.0% for the average intermediate-term fund, according to Morningstar. During the past five years, Vanguard has lagged 60% of its peers. The poor showing is particularly notable because the mutual fund has $120 billion in assets and ranks as the biggest passive bond fund. Will the index fund continue lagging actively managed competitors? Probably. The problem is that the Vanguard fund has most of its assets in government bonds. Those are likely to lag if the economy keeps growing and interest rates rise.