New indexed municipal ETFs offer additional options for your tax-sensitive clients
January 30, 2024
January 30, 2024
With the Fed tightening cycle likely nearing its end and yields remaining attractive on a tax-equivalent basis, this market environment presents a compelling case for considering municipal bond ETFs as a valuable addition to your clients’ fixed income allocation.
You now have access to more muni bond ETF options with the addition of Vanguard Intermediate-Term Tax-Exempt Bond ETF (VTEI) and Vanguard California Tax-Exempt Bond ETF (VTEC). The two municipal bond ETFs will be managed by Vanguard Fixed Income Group, which have overseen municipal bond portfolios for more than 40 years.
VTEI may be particularly useful for your clients in higher tax brackets who seek income exempt from federal taxation. The ETF will be benchmarked to the S&P Intermediate Term National AMT-Free Municipal Bond Index.
Complementing our existing short-term (VTES) and broad market (VTEB) tax-exempt ETFs, the new ETF will have an estimated expense ratio of 0.08%, compared with the average expense ratio for competing funds of 0.37%.1
Our expanded lineup now makes it easier for you to mix and match muni ETFs for a cost-effective way to manage exposure to a historically complex and costly-to-access asset class.
VTEI, with its 0 to 20-year maturity range, and VTES, with its 0 to 7-year maturity range, both allow for a broader universe of bonds to sample. This helps keep transaction costs down, which is especially important in low-issuance environments for both cost- and tax-sensitive investors.
VTEC is for tax-sensitive investors in California with an intermediate-term time horizon and preference for passive management. The new ETF will have an estimated expense ratio of 0.08%, compared with the average expense ratio for competing funds of 0.28%.1 Investors in California will also experience state tax-exempt yield.
Though this represents Vanguard’s first state-specific municipal bond ETF, Vanguard manages nine state-specific mutual funds today, three of which invest exclusively in California.
With competitive expense ratios and access to a broader universe of eligible bonds, these new muni ETFs provide cost-effective and tax-efficient options for your clients' fixed income needs.
1 Vanguard and Morningstar, Inc. as of December 31, 2023.
All figures as of December 31, 2023, unless stated otherwise.
For more information about Vanguard funds or Vanguard ETFs, visit advisors.vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
All investing is subject to risk, including the possible loss of the money you invest.
Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments. Investments in bonds are subject to interest rate, credit, and inflation risk.
Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares. For some investors, a portion of the fund's income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.
Vanguard Intermediate-Term Tax-Exempt Bond ETF and Vanguard California Tax-Exempt Bond ETF are not to be confused with the similarly named Vanguard Intermediate-Term Tax-Exempt Fund and Vanguard California Intermediate-Term Tax-Exempt Fund. These products are independent of one another. Differences in scale, certain investment processes, and underlying holdings are expected to produce different investment returns by the products. To obtain a prospectus for Vanguard Intermediate-Term Tax-Exempt Fund and Vanguard California Intermediate-Term Tax-Exempt Fund, please call 800-997-2798.
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