We've launched a new fund to expand our tax-exempt bond ETF (exchange-traded fund) lineup. Vanguard Short-Term Tax-Exempt Bond ETF (VTES) is built to help you earn consistent, tax-exempt income. VTES may be suitable for tax-sensitive investors with a short-term time horizon and low interest rate risk tolerance.
Financial management
Vanguard Short-Term Tax-Exempt Bond ETF has officially launched
Investing in our new bond fund can help you earn consistent, tax-exempt income.
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March 09, 2023
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Municipal bonds
May be suitable for investors in higher tax brackets
VTES is a simple, convenient way to invest in high-quality bonds that generate tax-exempt income. For investors in higher tax brackets looking to minimize risk, VTES offers modest federal tax-exempt interest without taking on significant interest rate risk.
What are municipal bonds?
VTES invests in municipal (muni) bonds, which are often issued to raise critical funding for state and local government projects like building and repairing roads, bridges, libraries, and other infrastructure. Municipal bond funds are exempt from federal taxes, which may make them a smart addition to tax-sensitive portfolios.
Rely on expert management
VTES will be managed by Vanguard's world-class Fixed Income Group, the world's largest manager of bond mutual funds and ETFs.* Our municipal bond team—40 tenured portfolio managers, traders, and analysts—leverages their deep experience, scale, and sophisticated processes to navigate this often complex segment of the fixed income market.
The Value of Ownership®
At Vanguard, you're more than just an investor—you're an owner.** That means helping you reach your goals is the mark of our success. Our investor-owned structure makes us unique in the industry, and it enables us to return value consistently to our investors.
Take a closer look at Vanguard Short-Term Tax-Exempt Bond ETF
How to estimate if you'd be better off in muni bond funds or taxable bonds
Since muni bonds are tax-exempt, they may be a better fit than taxable bonds in a tax-sensitive portfolio. To decide which option may be best for your goals, use the tax-equivalent yield to compare the after-tax yield of one versus the other.
For example, let's say you're in the 32% federal tax bracket and you invest in a taxable bond fund that yields 2.94%. As a result, your yield would be reduced to 2.00% after federal taxes. On the other hand, a muni fund may yield more than 2.00% because it's tax-exempt.
Note: This table does not include 3.8% net income tax that may be imposed on single filers above $200,000. This reduces the taxable equivalent yield hurdle for highest income brackets.
How does VTES compare with other bond funds?
Periodically reviewing your options to make sure you're invested in the right funds is important for a healthy investment strategy. If you assess your holdings and decide your portfolio needs a low-risk investment that provides consistent income, consider our U.S. investment-grade bond funds. Then consider these 3 important factors:
Tax-exempt bond funds usually produce lower yields, but the income earned is potentially greater because it's exempt from federal taxes.
Bond funds come with short-, intermediate-, or long-term maturities. The longer the maturity, the more sensitive the fund is to changes in interest rates.
Active funds try to beat market returns with investments handpicked by professional fund managers, while index funds aim to track a specific market benchmark as closely as possible.
Note: This table compares a few Vanguard bond funds with relatively low risk. This is not an exhaustive list of our available U.S. investment-grade bond funds.
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*$229.3 billion in assets under management as of December 31, 2022. Source: Morningstar.
**Vanguard is investor-owned, meaning the fund shareholders own the funds, which in turn own Vanguard.
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.
You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free) or through another broker (which may charge commissions). See the Vanguard Brokerage Services commission and fee schedules for full details. Vanguard ETF Shares are not redeemable directly with the issuing fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.
Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline.
Although the income from municipal bonds held by a 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.
We recommend that you consult a tax or financial advisor about your individual situation.
For more information about Vanguard mutual funds or Vanguard ETFs, obtain a mutual fund or an ETF 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.