Vanguard Expands Muni-Bond Lineup with 2 ETFs
Vanguard Group, the second-largest U.S. ETF issuer, plans to launch a pair of index municipal bond ETFs as hopes that interest rates may stop rising sparks demand for relatively safe bond products.
Vanguard, with $2.06 trillion in 82 ETFs, said in a statement that the Vanguard Intermediate-Term Tax-Exempt Bond ETF (VTEI) and the Vanguard California Tax-exempt Bond ETF (VTEC) will offer investors exposure to federal tax-free yields. The passively managed funds target investors with an intermediate time horizon, the statement said. The funds will have expense ratios of 0.08%, compared to the average of 0.34% for fixed income ETFs, according to etf.com data.
Muni ETFs, which track debt securities issued by both state and local governments, take advantage of the fact that interest income from municipal bonds is typically exempt from federal income taxes. Demand is rising as investors hold out hope that the Federal Reserve will not raise interest rates further and may in fact begin to trim them.
“These new strategies will offer tax-sensitive investors low-cost exposure to important segments of the municipal bond market through the ETF product structure,” Dan Reyes, Global Head of Vanguard Portfolio Review Department, said in the statement.
Yet despite demand for muni bonds, issuances have dropped 14% this year, David Dowden, portfolio manager of the MainStay MacKay municipal bond fund told etf.com last month in conversation with etf.com analyst Sumit Roy.
Tax Efficient Muni-Bonds
The Vanguard California Tax-Exempt Bond ETF is being marketed as an investment vehicle specifically for California residents, because the ETF offers exposure to both federal and state level tax-exempt yields.
The new additions to Vanguard’s $229 billion municipal bond portfolio will expand the firm’s fixed income lineup. Its biggest muni-bond fund is the Vanguard Tax-Exempt Bond ETF (VTEB). The issuer’s largest is the Vanguard 500 Index Fund (VOO).
Eighty-one municipal ETFs, holding $81.9 billion trade on U.S. markets. The largest is the $34.5 billion iShares National Muni Bond ETF (MUB).
The most recent ETF launched in the muni space was the Eaton Vance Intermediate Municipal Income ETF (EVIM) on Oct. 16.
Contact Lucy Brewster at lucy.brewster@etf.com.
