It’s been a big month for Vanguard thus far. Not only did the investment firm reach a major milestone by crossing the $2 trillion mark in U.S.-listed ETF assets under management earlier this month, but it also launched its second municipal bond ETF, the Vanguard Short-Term Tax-Exempt Bond ETF (VTES ), on March 9.
In the latest episode of “ETF Prime,” host Nate Geraci and VettaFi’s vice chairman Tom Lydon discussed Vanguard’s recent milestone and the launch of VTES. In the podcast, Lydon expressed his admiration for the firm, calling Vanguard “the Hoover of the ETF industry,” because of the way it’s become a vacuum cleaner for investor dollars at a time when many ETF issuers are seeing outflows.
“They are just rock solid. They’re just steady. They have so many choices. They do a wonderful job. They’re low-cost and always very, very dependable,” Lydon said. “They deserve this, and it’s just another credit to the ETF industry as well.”
Lydon remembered watching Vanguard’s development and seeing what the company was doing as far back as 2005. And while the company never seemed particularly exciting — “They were just somewhat plain vanilla,” he said — that turned out to be exactly what investors were looking for.
“It’s slow and steady that wins the race,” Lydon added. “Those people that have invested in Vanguard over time have done very, very well for themselves.”
Vanguard hit this milestone thanks in part to gaining $23 billion in net inflows at the start the year and positive year-to-date total returns for nearly all of its ETFs. Vanguard is the second-largest ETF provider behind BlackRock, which manages $2.3 trillion in ETFs.
The Launch of VTES
In addition to crossing this major threshold, Vanguard also last week launched VTES, which predominantly invests in short-term investment-grade municipal bonds by tracking the S&P 0-7 Year National AMT-Free Municipal Bond Index. Geraci noted that the listing of VTES is Vanguard’s first ETF launch since April 2021.
“VTES is designed for tax-sensitive investors who have a preference for taking on less interest rate risk than the overall municipal market,” Jeff Johnson, head of fixed income product at Vanguard, told VettaFi.
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.”
While VTES is an indexed fund, Lydon noted that active management is gaining steam in the ETF space and speculated whether Vanguard would take advantage of that demand.
“We’re seeing a lot of flows in the active space in the ETF area where they tend to be indexed-oriented. I wouldn’t be surprised to see them offer up more active strategies as well,” Lydon said. “There’s definitely some demand there.”
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