Vanguard has launched its first actively managed municipal bond ETFs, debuting two new funds targeting broad and short-duration exposures.
Sara Devereux, Global Head of Vanguard Fixed Income Group.
The Vanguard Core Tax-Exempt Bond ETF (VCRM US) and Vanguard Short Duration Tax-Exempt Bond ETF (VSDM US) have been listed on Cboe BZX Exchange.
Managed by the Vanguard Fixed Income Group, these ETFs provide diversified exposure to municipal bonds across various sectors, states, and credit qualities, with the potential to outperform benchmarks over the long term.
The funds employ a value-oriented, credit-intensive investment approach, seeking yield-driven total returns by capitalizing on market inefficiencies through a bottom-up, fundamental credit analysis.
Sara Devereux, Global Head of Vanguard Fixed Income Group, stated: “These new ETFs combine our top-tier active fixed income capabilities with our expert municipal bond team, all within an actively managed ETF wrapper that’s becoming essential for many investors.
“We envision these ETFs playing an integral role in investors’ portfolios; with Vanguard Core Tax-Exempt sitting centrally as part of their tax-exempt allocation and Vanguard Short Duration Tax-Exempt leveraging our expert active capabilities, helping investors to get the most out of their short-term allocation.”
The Vanguard Core Tax-Exempt Bond ETF imposes no limitations on the maturity of individual securities but, under normal market conditions, will aim for a dollar-weighted average maturity of 8 to 20 years. No more than 20% of assets may be allocated to non-investment-grade securities, although the strategy primarily targets higher-quality municipal bonds, defined as those rated A- or higher. The ETF comes with an expense ratio of 0.12%, notably below the 0.36% average expense ratio for peer funds in the same Morningstar category.
The Vanguard Short Duration Tax-Exempt Bond ETF, meanwhile, similarly focuses on higher-quality municipal bonds but targets those at the shorter end of the yield curve, offering reduced interest rate sensitivity. It is expected to maintain a dollar-weighted average maturity of 2 to 7 years and an average duration of 1.5 to 5 years. The fund has an expense ratio of 0.12%, compared with the category average of 0.27%.
These actively managed funds complement Vanguard’s existing suite of index municipal bond ETFs. This includes the Vanguard Tax-Exempt Bond ETF (VTEB US), providing broad exposure to the US investment-grade municipal bond market; the Vanguard Short-Term Tax-Exempt Bond ETF (VTES US), focusing on short-term maturities; the Vanguard Intermediate-Term Tax-Exempt Bond ETF (VTEI US), targeting intermediate durations; and the Vanguard California Tax-Exempt Bond ETF (VTEC US), offering state-specific exposure for California residents.
The introduction of these ETFs further enhances Vanguard’s active fixed income ETF suite, building on recent launches such as the Vanguard Core Bond ETF (VCRB US) and Vanguard Core-Plus Bond ETF (VPLS US), offering multi-sector fixed income allocations.