Vanguard launches first tax-smart active ETFs

Key takeaways:

Vanguard has bolstered its active fixed income lineup with two new municipal ETFs: Vanguard Core Tax-Exempt Bond ETF (VCRM) and Vanguard Short Duration Tax-Exempt Bond ETF (VSDM). These additions are designed to provide investors with tax-smart options—not only are they focused on offering tax-exempt income, but they benefit from the tax efficiencies inherent with ETFs.

This new rate environment may have you looking to be more tactical with your asset allocation shifts, especially with your tax-sensitive clients. You now have two new low-cost, tax-exempt active ETF options that allow you to benefit from the value active management can offer in the typically illiquid and fragmented municipal bond market.

These ETFs, managed by the experienced Vanguard Fixed Income Group, aim to leverage our firm’s deep expertise and vast resources to outperform the market.

Featured points:

• Alpha driven by deep expertise: One of the largest fully dedicated municipal investment teams in the industry manages our municipal funds. In a highly idiosyncratic and fragmented market, with close to 50,000 issuers, our vast resources find and add value.
• Cost efficiency: A standout feature of the new ETFs is their competitive expense ratios. Vanguard Core Tax-Exempt Bond ETF will have an estimated expense ratio of 0.12% compared with the average expense ratio for competing funds of 0.36% as of September 30, 2024. Vanguard Short Duration Tax-Exempt Bond ETF will also have an estimated expense ratio of 0.12% compared with the average expense ratio for competing funds of 0.23% as of September 30, 2024.¹ This cost efficiency is a cornerstone of Vanguard’s strategy, allowing investors to retain more of their wealth while benefiting from expert fund management.
• Value-oriented investment process: Our low fees also enable us to selectively add risk where and when our clients are appropriately compensated. This process reduces drawdowns while maintaining upside relative to peers who carry higher beta through market cycles to offset higher expenses.
• Focus on coupon and call structures: We can increase alpha by managing prepayment and extension risks, which are often mispriced in the market. Decades of experience with this alpha lever provide us with a distinct competitive advantage.
• All-curve construction (only VCRM): The design of Vanguard Core Tax-Exempt Bond ETF breaks tradition by including the long end of the curve. In the municipal market, the longest maturities have persistently offered the best valuations and greatest potential for alpha.

With the launch of Vanguard Core Tax-Exempt Bond ETF and Vanguard Short Duration Tax-Exempt Bond ETF, Vanguard continues to demonstrate its commitment to providing high-quality, cost-effective investment options. These ETFs are expected to attract a wide range of investors looking for reliable tax-exempt income solutions backed by one of the most trusted names in the investment management industry.

Vanguard’s track record as an investment manager remains unparalleled—95% of Vanguard active fixed income funds outperformed their peer group averages over the past 10 years ended September 30, 2024.²

Discover more:

Vanguard Core Tax-Exempt Bond ETF (VCRM)

Vanguard Short Duration Tax-Exempt Bond ETF (VSDM)

1 Morningstar data as of September 30, 2024.

2 For the 10-year period ended September 30, 2024, 42 of 44 Vanguard active bond funds outperformed their peer group averages; results will vary for other time periods. Only funds with a minimum 10-year history were included in the comparisons (source: LSEG Lipper). Note that this competitive performance data represents past performance, which is not a guarantee of future results, and that all investments are subject to risks. For the most recent performance, visit our Vanguard investments page.

Notes:

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 possible loss of principal.

Diversification does not ensure a profit or protect against a loss.

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.

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.