On Thursday, a significant event took place as Vanguard introduced two new active bond ETFs. These funds bring forth distinct viewpoints in the realm of municipal bond investing. Sara Devereux, the global head of Vanguard Fixed Income Group, emphasized the significance of these new ETFs, stating that they combine top-tier active fixed income capabilities with the expertise of their municipal bond team, all encapsulated within an actively managed ETF wrapper that is becoming indispensable for many investors.
Unlock the Potential of Vanguard's New Bond ETFs
A Core Muni Strategy
The Vanguard Core Tax-Exempt Bond ETF (VCRM) presents an active core muni strategy. Remarkably, despite being actively managed, it boasts a relatively low net expense ratio of just 12 basis points. Primarily, VCRM allocates its assets towards U.S. muni bonds. Specifically, the fund concentrates on muni bonds whose interest is exempt from both federal income taxes and the federal alternative minimum tax. While the fund may invest in bonds of any quality, it predominantly focuses on investment-grade securities. VCRM aims to maintain an intermediate portfolio duration ranging between eight and 20 years. This provides investors with a balanced approach to municipal bond investing, allowing them to benefit from the stability and tax advantages offered by muni bonds while still maintaining a certain level of flexibility.The intermediate duration ensures that the fund is not overly exposed to interest rate fluctuations in the short term, while still providing a reasonable return over the long run. Investors can have confidence in VCRM's ability to navigate the complex world of municipal bonds and generate consistent returns.Opting for Shorter Duration
Conversely, the Vanguard Short Duration Tax-Exempt Bond ETF (VSDM) offers a relatively shorter portfolio. With an average maturity slated to be between two and seven years, this fund provides investors with a more nimble option. Similar to VCRM, VSDM also seeks U.S. muni bonds with interest exempt from the federal alternative minimum tax and federal income taxes. This tax advantage makes VSDM an attractive choice for investors looking to minimize their tax liabilities while still investing in the fixed income market.Just like VCRM, VSDM currently has a net expense ratio of 0.12%, making it an extremely cost-efficient vehicle for accessing Vanguard's extensive fixed income strategy. The shorter duration of the portfolio allows investors to have more flexibility in responding to changes in the market and interest rates. It also provides a lower level of risk compared to longer-duration funds, making it suitable for investors with a shorter investment horizon or those who are more risk-averse.Vanguard has an impressive portfolio of over 80 ETFs listed in the United States, many of which offer dynamic bond strategies. One of the largest Vanguard fixed income ETFs, the Vanguard Total Bond Market ETF (BND), manages an astonishing $117 billion in assets under management. This highlights Vanguard's dominance and expertise in the fixed income market.Todd Rosenbluth, the head of research at VettaFi, added that Vanguard has tremendous active management expertise that can be leveraged to support ETF investors. The demand for fixed income ETFs has never been stronger, and advisors and investors will benefit greatly from the availability of more low-cost choices.For more in-depth news, information, and analysis, be sure to visit the Fixed Income Channel.