In the midst of the ridiculous market volatility this week, Vanguard announced an addition to its portfolio of funds for investors to purchase: the Vanguard Tax-Exempt Bond Index Fund. This new fund will offer three “low-cost” share classes: ETF (VTEB), Investor (NYSEMTK:VTEBX) and Admiral (NYSEMKT:VTEAX).
The Admiral and ETF shares of the fund feature expense ratios of 0.12%, while Investor shares have an expense ratio of 0.20%. The municipal bond funds in Lipper's General and Insured Municipal Debt Funds category have an average expense ratio of 0.95%, while comparable ETFs in the category have an average expense ratio of 0.28%. This data is according to Lipper, a Thomson Reuters company, December 31, 2014.
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The fund's target benchmark is the S&P National AMT-Free Municipal Bond Index. Ultimately the goal of the fund is to offer diversified exposure to the national municipal bond market, representing bonds with maturities across the yield curve and an effective duration between five to eight years.
Bill McNabb, CEO of Vanguard, commented:
Vanguard is a pioneer in index investing and a leader in municipal bond fund management. Our new fund enables us to leverage our experience and expertise in both of these areas. Not only did we offer the first index mutual fund to individual investors, but we were also the first to offer investors a choice among municipal bond funds of differing maturities. We are pleased to now provide a low-cost tax-exempt option for investors who prefer an index approach.
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Chris Alwine, head of Vanguard's Municipal Bond Group, added:
We believe a fund focused on high-quality municipal securities with greater liquidity relative to the overall municipal bond market will reduce credit and liquidity risk. The fund will also benefit from our deep and long-tenured municipal market team, as well as our scale, to minimize trading costs and closely match the benchmark's risk characteristics. At the same time, the fund will carry the interest rate risk consistent with medium- to long-term bonds.
Vanguard is one of the world's largest investment management companies. As of July 31, 2015, Vanguard managed more than $3.3 trillion in global assets, including nearly $478 billion in ETF assets. The firm, headquartered in Valley Forge, Pa., offers 298 funds to its more than 20 million investors worldwide.