Municipal bonds are on track to have a strong 2023. According to Steve McFee, a senior portfolio manager in Vanguard’s Investment Management Group, 2022 was a challenging year. But that was primarily because of restrictive central bank policies. Those policies led to lower asset prices, higher yields, and wider credit spreads across the bond universe. And despite this, fundamentals for munis remained strong. The rise in real estate prices led to increased state and local tax revenues over the past few years. Additionally, many municipalities augmented their “rainy-day” funds with COVID-era stimulus money.
An Asset Class To Maximize Tax-Exempt Income, Maintain Stability
“Despite current market movement, many municipalities are in healthy fiscal shape,” McFee said. “That all makes this an attractive asset class for investors looking to maximize tax-exempt income while maintaining a certain level of portfolio stability.”
McFee and his team oversee six of Vanguard’s seventeen muni mutual fund and ETF portfolios. Among them is the Vanguard Short-Term Tax-Exempt Bond ETF (VTES ), which invests in investment-grade muni bonds with maturities between zero and seven years.
A Slice of Vanguard’s Tax-Exempt Bond ETF VTEB
VTES is the second passively managed fund in Vanguard’s muni lineup, the other being the Vanguard Tax-Exempt Bond ETF (VTEB ).
“Our newest ETF (VTES) is effectively a short-term sub-slice of VTEB,” McFee said.
Additionally, Jeff Johnson, head of fixed income product at Vanguard, told VettaFi that Vanguard designed VTES “for tax-sensitive investors who have a preference for taking on less interest rate risk than the overall municipal market.”
Finally, Janel Jackson, Vanguard’s head of ETF capital markets, added: “We saw an opportunity for investors who have an interest rate preference that’s on the shorter end of the curve.”
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